Episode summary
Is the US Jobs Market Starting to Crack? Steven Rattner on Tariffs, AI and Stagflation
Wall Street Week
· · 9 min · Guests: Steven Rattner
Summary
Steven Rattner says the U.S. labor market has been softening for more than just the last few months, with job creation running well below prior years even as GDP still looks solid. He argues that the disconnect is partly a productivity story, but mostly reflects companies “battening down the hatches” because of tariffs, uncertainty, and the need to right-size after a post-COVID hiring surge.
He also says tariffs may be perversely boosting productivity while hurting employment, because higher costs force firms to cut elsewhere, including labor. On sector trends, he notes that job growth has been concentrated in health care while manufacturing jobs have been falling, and he views weaker immigration as an unlikely primary explanation for the labor slowdown.
Rattner says AI is already influencing hiring decisions in an anticipatory way, especially in engineering, financial services, and software, though he does not think it has yet materially changed employment totals. For investors, he sees the bigger risk as a stagflation-like mix of rising unemployment and rising inflation, which would be bad for the Fed and rough for markets. He also thinks private credit will see pain, but not a 2007-2008 style systemic event.
Key takeaways
- Steven Rattner says job growth has been slowing for a year, not just the last two or three months, even as GDP remains around 2.5% to 3%.
- He argues tariffs are pressuring companies to cut costs, and labor is often the place they cut first.
- Rattner says AI is having an anticipatory effect on hiring, especially for engineers, finance workers, and software staff.
- He thinks rising unemployment plus rising inflation would create a stagflation risk that is “really bad for the market.”
- Rattner says private credit may take losses in software-related ARR loans, but he does not see a 2007-2008 style systemic problem.
Notable quotes
“We should be somewhat concerned. It's not a great thing, obviously, to have the unemployment rate going up, to have the number of jobs going down”
“They are nervous about the tariffs. They're nervous about the uncertainty”
“-Helping on the productivity and hurting on the jobs, because basically when companies do have these tariffs that they have to pay and then pass on, they look at other costs and say, "What other costs can we cut”
“I do think it's having an anticipatory effect, although I'd be the first to say I don't think it's actually changing the number of people working at the moment”
How the episode opens
Let's talk about the U.S. labor market right now. We have had some numbers now indicating some softening over the last two or three months, actually.
How concerned are you, or should we be? -Well, actually, we've had softening over even the past year. If you look at the number of jobs created on average, it was substantially lower last year than in the previous several years.
How concerned should we be? We should be somewhat concerned. It's not a great thing, obviously, to have the unemployment rate going up, to have the number of jobs going down.
None of that can be viewed as good. Obviously, we still have had, so far anyway, very strong GDP growth, so that is in some ways an even more important indicator. But yeah, it's definitely of concern.
Westin: As you say, GDP is growing from the numbers we've seen so far for two and a half, three percent, something like that. And we are not creating as many jobs. Is that a shift in the economy about how many jobs we need to have the same output?
-Well, obviously, just the simple math is when those two things happen, you get a productivity increase. And that's a good thing. Productivity increases are really what makes the economy more prosperous for everybody.
You can't have real incomes go up without productivity growing. In terms of why is this happening, why is this disconnect happening at this time, there are obviously a bunch of theories. One is AI, which we can come back to.
But I think it's absolutely true that companies are battening down the hatches. They are nervous about the tariffs. They're nervous about the uncertainty.
There was a huge amount of hiring that went on post-COVID when it was hard to find workers.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- us jobs market
- tariffs
- ai hiring
- stagflation
- fed policy
Companies and tickers mentioned
- Willett Advisers
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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