Interview, Webinar
Making Sense of Weak Job Growth Alongside Solid GDP Growth
- U.S. GDP growth for the current year is projected to reach the high end of the 1% range, driven by tariff impacts being less severe than anticipated in March and April.
- The government shutdown is forecast to persist for approximately three additional weeks, with each week of closure expected to reduce quarterly annualized GDP growth by 0.1 percentage point, a loss anticipated to be recovered in Q1 of the following year; however, extensions beyond one month could increase the weekly drag to a range of 15 to 20 basis points.
- Productivity growth has rebounded to a historical average of 2%, with potential for increases above this level if artificial intelligence provides a further boost.
- The unemployment rate is projected to rise by 0.1 percentage point in each of the last two months of available data and increase slightly through the end of the year, with an upward trend reversal expected next year as tariff uncertainties peak and offsetting fiscal impulses materialize over the subsequent four quarters, particularly in the first half of 2026.
- Total demand growth is expected to accelerate with greater consistency as tariff drags diminish and fiscal bill benefits begin to take effect over the next four quarters.
- Current AI investment is estimated to contribute approximately 0.1 percentage point to measured GDP growth, while a surge in business technology equipment investment is viewed as front-loading ahead of potential tariffs rather than indicating a true trend pickup.
- Labor market dynamics face uncertainty regarding the maintenance of aggressive full employment definitions as companies utilize AI to reduce labor costs, with hiring potentially hesitating over the next six to 12 months due to expectations of future AI automation availability.
- Excluding tariff effects, core inflation is estimated at 2.5% and is expected to decline toward the 2% target without necessitating further policy adjustments, while year-on-year inflation is projected to range in the high 2s or peak near 3% over the next two to three quarters.
- Tariffs are expected to increase the price level by an additional 0.6%, bringing the cumulative impact to roughly 1% (0.4% already realized plus 0.6% pending).
- The Federal Reserve is projected to execute 25 basis point interest rate cuts in September, October, and December based on risk management, with deviation from the October cut considered unlikely without strong data signals.
- Alternative data indicators present conflicting views on September job growth, with some suggesting a slight pickup and others indicating continued market softening, though a reopening of the government and three months of data are expected by the December meeting to inform future rate decisions.