The current economic climate is often described as unprecedented, a sentiment echoed by many in the field. To unpack the complex forces at play, economist Gad Levanon, Chief Economist at the Burning Glass Institute and an adjunct professor at NYU, recently shared his expert perspective on key trends shaping the U.S. economy.
The Shifting Labor Market: Slow Growth as the New Normal?
Recent jobs data have presented a mixed picture, leading to varied interpretations of the labor market's health. Gad Levanon noted that a recent jobs report "changed the perception of the economy and the labor market much more than most reports" due to significant revisions to prior months' data. He suggested that periods of panic, such as around April, where a recession seemed imminent, likely impacted hiring decisions, but that "the panic was mostly over and now we are on a more solid footing."
While job growth is expected to remain slow, Levanon clarifies that this doesn't necessarily signal economic weakness. Instead, it reflects a combination of economic slowdown and "relatively strong productivity growth," partly fueled by the rise of Artificial Intelligence (AI). He explained that as workers become more productive, employers require fewer new hires, leading to what he calls a "period of low employment growth." He anticipates the U.S. could continue "averaging less than 100,000 new jobs a month," a figure that, while low by historical standards, doesn't imply an "unusually weak" economy. Samantha Jones, who hosted the discussion, reflected on this, asking if we are "starting to see the need to adjust expectations more permanently moving forward compared to what we've seen historically."
Inflation, Tariffs, and the Fed's Tightrope Walk
Inflation remains a significant concern, persistently staying above the Federal Reserve's target. The discussion delved into how much of this is influenced by tariff uncertainty. Gad Levanon pointed out that tariffs, while not having a massive impact on inflation so far, "will push inflation a little up in the coming months," creating a "real risk that even this year and maybe next year inflation will remain above the Fed's target".
A crucial aspect of this challenge is how the Fed will react, especially given pressures to cut rates. Levanon emphasized that if a 3% inflation rate becomes the new 2% in public perception, "it will become much harder for the Fed to actually reduce it to 2%." Samantha Jones also highlighted that many industries are yet to see the full impact of tariffs, as contracts are often negotiated a year in advance, with price increases for 2026 potentially stemming from 2024 tariff hikes. She suggested the Fed might be waiting for this full impact to materialize.
The prospect of a new Fed chair and governors by mid-2026 also adds uncertainty. Levanon speculated that "the whole priority and goals of the Fed would change by then," possibly leading to more relaxed policies, which "could be bad news for inflation expectations."
Recession Watch: A Shorter Horizon
The Burning Glass Institute has developed a unique recession predictor model. Unlike traditional models that project six or twelve months out, their model focuses on the probability of a recession within the next two months. This approach is favored because, as Gad Levanon explained, "it's almost impossible to find good leading indicators 6 months or 12 months into the future." The model aggregates 12 or 13 indicators proven reliable in forecasting recent recessions (excluding the unpredictable pandemic one) and in avoiding false alarms. Samantha Jones appreciated this, noting, "I've been talking about recession odds now for like three years and nothing's happened," suggesting that a shorter-term, more immediate prediction is more helpful. Currently, the model "suggests that there is no recession on the horizon".
Beyond the Numbers: Immigration and Regional Inequality
The conversation also touched on the often-underestimated impacts of immigration policy on the labor supply. Gad Levanon observed a "massive entry to the country" in previous years, boosting labor supply, but noted that under the current administration, new entries are "essentially zero," with a push for deportations. This significantly reduces the labor supply, making the future trajectory of the unemployment rate less clear. He added that in some regions and occupations, illegal immigrants constitute a large part of the workforce, particularly in agriculture, construction, care, and transportation. The enforcement of immigration policies could lead to significant impacts on entire industries, creating an unquantifiable interplay between politics and economics, as Samantha Jones put it, "that's probably not talked about very much because we'll never have data on it to talk about."
Looking ahead, Gad Levanon voiced concerns about growing inequality, particularly regional inequality. He believes that "the main beneficiaries of AI are going to be owners and top employees in tech companies," leaving others behind. He specifically highlighted the Midwest, a region that has suffered from manufacturing decline and has been largely "skipped" by the tech boom. While acknowledging this, Samantha Jones expressed optimism that the Midwest's available labor and physical space could attract advanced technology companies in the future, as seen with new chip manufacturing plants in Kansas.
A New Economic Era Driven by AI
A recurring theme was the idea that the global economy has entered an "unusual" period since 2020, characterized by unique patterns and trends. Gad Levanon believes this isn't just a temporary phase but the dawn of a new era. He sees AI as a more profound technological advancement than most, potentially initiating "30 years or even more of a strong productivity growth". He vividly recalled his initial experience with ChatGPT in late 2022, feeling that "history is happening."
While AI is expected to revolutionize various sectors, from office jobs to robotics (like Amazon warehouses becoming increasingly automated), its full productivity-enhancing effects in industries like freight are still in early stages. Despite these challenges, there are reasons for optimism. Gad Levanon believes that "there will be some reshoring of manufacturing," with the sector already showing signs of picking up in the U.S. over the past several months, reversing a previous downward trend.
In conclusion, the U.S. economy is navigating a complex and transformative period. From a redefinition of "normal" job growth to the intricate dance between inflation and policy, and the overarching impact of AI, understanding these dynamics is key to planning for the future.