Weak Jobs Report Raises Recession Concerns and Highlights AI's Labor Market Impact, Says JPMorgan

U.S. payroll growth slowed significantly last month, with only 73,000 jobs added—well below expectations of 100,000. Previous months' figures were also revised downward, bringing the average monthly gain over the past three months to just 35,000. Despite the weak numbers, other indicators such as weekly jobless claims and job turnover surveys do not suggest widespread layoffs, and wages and work hours continue to rise.

JPMorgan economists described the sharp hiring slowdown as a "stall speed alert," noting that private sector hiring averaged just 52,000 over the last three months, with most gains concentrated in health and education. They explained that the lack of increased layoffs, combined with slower hiring, signals that business demand for labor has cooled. > "We have consistently emphasized that a slide in labor demand of this magnitude is a recession warning signal," JPMorgan stated, adding that such trends are often precursors to retrenchment.

While the broader economy continues to expand, growth is slowing. Second-quarter GDP rebounded to 3%, but measures of domestic demand indicated a loss of momentum, and the Atlanta Fed projects third-quarter growth at 2.1%. JPMorgan warned that the current pace of job growth is unlikely to support continued income gains or consumer confidence.

The U-6 measure of unemployment, which includes those marginally attached to the workforce and involuntary part-time workers, has risen by 0.4 percentage points this year, while the headline unemployment rate has remained stable between 4% and 4.2%. Until the latest report, this stability had contributed to perceptions of a resilient labor market.

JPMorgan also pointed to evidence that artificial intelligence is affecting employment, especially in professional and business services, where payrolls declined by 14,000 last month. The unemployment rate for college-educated workers increased to 2.7%, and a larger share of new entrants contributed to the rise in overall unemployment. According to JPMorgan, these trends may reflect AI reducing the need for entry-level roles, impacting recent graduates.

However, economist Brad DeLong argued in a recent essay that policy uncertainty and a sluggish economy, rather than AI, are the main challenges for young job-seekers. He wrote that companies' risk aversion in an unpredictable policy environment, including trade tensions, is particularly harmful for those starting their careers.