Why this economist says we don't have to worry about AI replacing jobs yet

Yelena Shulyatyeva, U.S. Economist at BNP Paribas previews the May employment report and what it may mean for the Fed's June meeting. She also weighs in on why AI doesn't need to be factored into job report expectations yet.

Video transcript

- In the meantime, a slew of economic data is on tap this week. We've got job openings coming up at 10:00 AM today, we've got farm payrolls coming Friday as investors closely watch for clues ahead of the Federal Reserve's upcoming meeting in June. So what will this data tell us or not about the state of the economy? Let's bring back in Yelena Shulyatyeva, BNP Paribas US economist.

And you sort of alluded to this a little bit earlier on that the jobs data, it always gets revised. We had fraud issues with the jobless claims data. What do we trust when it comes to trying to figure out how this economy is going?

YELENA SHULYATYEVA: You have to look at the totality of labor market data, to use the Fed language. So I think the totality of data are telling us that we are slowing down. It's not rapid. It's not dramatic yet, but things are definitely slowing down.

So if you look at the three-month moving average of payrolls, it's been slowing down since like 2021. And we are at the pace which is still solid, but it's way below the pace that is consistent with really robust economic growth. And we'll see further declines, I think, in the pace.

So I gave you an example, right, temporary workers. Companies are not hiring. Companies are laying off temporary workers because they want to keep the permanent stuff as long as they can. So they can lay off temporary workers.

And that's a signal what is coming up in a broader-- for a broader labor force because corporate profits are declining. And if you look at hiring intentions among small businesses, they are also trending down. Small companies also face an issue of tightening lending standards because they depend on smaller regional banks for credit needs.

So I think we just haven't seen the extent of a slowdown that is about to happen. But we are starting to see these things happening. You mentioned JOLTS data. But something else is coming out today at 2:00, it's the Fed's Beige Book. This is anecdotal evidence of what is happening in the economy.

And in the previous Beige Book, we saw a lot of signs of credit tightening percolating through the economy. I think we will see even a broader tightening in credit conditions in this upcoming Beige Book. And that will affect companies hiring decisions to a large extent, going into the second half of the year.

I think we're going to see some declines in hiring rates in the JOLTS data coming up. Just simply because well while companies are not laying off workers, still they're hiring much less. And that is what we saw in the data in the Conference Board's survey yesterday. Jobs are becoming less plentiful, but probably not yet hard enough to get.

- Yeah, and consumers also very cognizant of that even within that Conference Board data talking about them being more downbeat about the opportunities for employment in the future compared to, in relative to when they were seeing wages continue to rise to try and keep pace with a very competitive landscape for finding and acquiring talent.

Within the employment situation, though, the Fed has been able to lean on that within their own policy and pathway there. So if we were to see a recession to the extent that you were describing earlier, what would that look like even on the unemployment rate side that has remained resilient and near some of the lows, some of the all time lows that we've seen?

YELENA SHULYATYEVA: So I think what we will see eventually is declines in payrolls. Probably in the vicinity of $200,000 a month. That is typical. And we could see the unemployment rate rising to 5, 5 and 1/2% as a result. But this changes will come later. So first, you see a slowdown in activity.

And I think we're starting to see that in certain sectors like manufacturing, Paul mentioned, and like other sectors. Eventually, the service sector activity will converge to a weaker manufacturing activity in our view just as the economy continues to slow down as a result of Fed policy actions, and actually what happened back in the first quarter with the banking sector. That will play quite a large role in our view as well.

So you know, I think we will see some increases in the unemployment rate down the road, but that may-- we may not see the full extent of it until the end of next year.

- Something that's been interesting to ponder, especially with the turnover in certain roles that are being replaced by companies announcing that they're going to pull in AI to replace some of the call center jobs, or some of the productivity tasks that steal worker's time away from other decision-making tasks that could be done. How far away are we from thinking of artificial intelligence as an employment situation input that needs to be considered more broadly?

YELENA SHULYATYEVA: We're a service economy. And even if you see at the airports that the computers replace people who-- like the waiters and others, we are still far away from a complete replacement, I think. We're still a service economy, and we still need a lot of the service jobs. So I'm skeptical on that front. And productivity growth is great for the economy in the long run. So that creates better paid jobs down the road. So I think we're OK on that front.

- Good. I'm glad to hear that.