AI's Gradual Labor Disruption and Disinflationary Economic Signals - Episode Hero Image

AI's Gradual Labor Disruption and Disinflationary Economic Signals

Bloomberg Surveillance · · Listen to Original Episode →
Original Title:

TL;DR

  • The Dow Theory, historically linking industrial and transport averages, suggests market alignment when both indices move in tandem, indicating broader economic health beyond individual sector performance.
  • Declining oil prices historically correlate with improved transport sector margins, as lower fuel costs directly reduce operating expenses, potentially signaling margin expansion for transportation companies.
  • Major technological disruptions, like AI, require decades to fully impact labor markets, as companies need substantial time to integrate new technologies and adapt business processes.
  • Securing AI agent identities through platforms like Okta is critical for business trust and risk mitigation, ensuring agents operate reliably and do not jeopardize enterprise security.
  • Active ETFs offer a strategy to potentially outperform benchmarks, contrasting with passive ETFs that merely track them, aiming for stronger portfolio construction through dynamic management.
  • Yale's Budget Lab's tariff analysis highlights the significant economic impact of trade policies, providing data-driven insights into how tariffs affect various sectors and the broader economy.

Deep Dive

The current economic landscape is marked by an unusual confluence of market indicators and technological shifts, suggesting a period of potential disinflation and significant, yet gradual, labor market disruption due to AI. While the immediate focus is on inflation reports, the longer-term implications of technological adoption and historical market theories provide a more nuanced view of future economic dynamics.

The Dow Theory, a century-old market indicator, suggests a potential alignment of economic forces as transportation stocks, historically sensitive to economic activity, improve alongside broader market averages. This improvement is partly explained by a strong inverse correlation between falling oil prices and the profitability of transportation sectors, which are seeing improved margins due to lower fuel costs. This exogenous development in oil prices, with Brent crude below $60 and West Texas Intermediate below $56, is a significant factor. However, the interpretation of these signals remains debated, with some pushing back against viewing them as definitive confirmation of underlying economic strength, suggesting instead a focus on the disinflationary impact.

Simultaneously, the introduction of major new technologies, specifically Artificial Intelligence, is poised to disrupt the labor market, though not instantaneously. Historical parallels with the adoption of electricity and the internet demonstrate that significant labor market shifts occur over decades, not years. Companies do not immediately overhaul their operations upon the introduction of a new technology; rather, integration and adaptation are gradual processes. This suggests that while AI's impact is inevitable, immediate, widespread disruption is unlikely, allowing for a more measured adjustment period. The Yale Budget Lab's initial report on AI underscores this perspective, emphasizing that this is just the beginning of their analysis on the technology's implications.

The key takeaway is that while immediate economic signals like falling oil prices may appear positive for certain sectors, the true economic narrative is being shaped by a slower, more profound technological revolution. Understanding the historical pace of technological adoption is crucial for anticipating AI's impact on the labor market, preventing an overreaction to immediate, potentially misleading, economic indicators.

Action Items

  • Audit AI integration: Assess 3-5 key AI agents for identity security risks (ref: Okta's AI security guidance).
  • Analyze AI adoption timeline: Estimate labor market disruption impact over 5-10 years, referencing historical tech adoption rates (ref: Yale Budget Lab AI report).
  • Track transport sector margins: Monitor fuel price impact on transport company profitability for 3-5 key indicators.
  • Evaluate disinflationary trends: Calculate inflation rate projections for Q1 and Q2 next year, referencing expert calls.
  • Measure tariff impact: Quantify economic effects of 2-3 specific tariffs using Yale Budget Lab's analytical framework.

Related Episodes

Key Quotes

"The Dow Theory is that the stars align when the Dow Jones Industrial Average and the transports and the utilities go up together or down together. A lot of good academic work on this in the 1930s and the depression. And it was sort of gospel through World War II and on to my parents' 50s and 60s."

This quote introduces the Dow Theory, a historical market indicator. The speaker explains that this theory posits market alignment occurs when industrial, transport, and utility stock averages move in unison. The speaker notes its historical significance, dating back to the 1930s and its widespread acceptance through the mid-20th century.

"David Rosenberg of Rosenberg Research on the Dow Theory. The Dow Theory advocates obviously like what they're seeing. I don't know, Tom, if you look at it more from a fundamental perspective, what the transports are really telling you, except for the fact that oil and fuel prices are coming down. Um, so there's a historic inverse correlation of minus 50, minus 60% between what oil prices do and the transports."

David Rosenberg discusses the current market sentiment regarding the Dow Theory, noting that its proponents are optimistic. Rosenberg questions whether the transport sector's performance, which is often linked to economic health, is truly indicative of broader economic strength or simply a reflection of falling oil and fuel prices. He highlights a significant historical inverse correlation between oil prices and transport sector performance.

"Martha Gimbel drives the ship, earning to Desky, with a shout out for the work on tariffs. They're now beginning to look at AI. And they have an initial report. They make clear that it's just a first report of many to come. This is the Budget Lab at Yale and their Martha Gimbel on AI."

This quote identifies Martha Gimbel as the leader of the Budget Lab at Yale, acknowledging their prior work on tariffs. The speaker notes that the Budget Lab is now focusing on Artificial Intelligence (AI) and has released an initial report on the subject, indicating that more research is forthcoming. The speaker emphasizes that this is a preliminary publication from the Yale-based research group.

"It would be unusual, right, for there to be no labor market disruption when you introduce a major new technology. I think the thing that everyone keeps forgetting, right, is that it takes time for technological disruption to happen. It took decades for electricity to disrupt the labor market. It even took a pretty long time for the internet to kick in, right? It wasn't like immediately in 1997, we were changing all the things."

Martha Gimbel explains that significant labor market disruption is a typical outcome when major new technologies are introduced. Gimbel points out that the impact of technological advancements is not immediate, citing the lengthy periods it took for both electricity and the internet to fundamentally alter labor markets. She suggests that people often overlook this historical pattern when considering the effects of AI.

"But this alpha dog laser gaze won't keep your supply chain moving across borders. The real power move? Having a smart platform that keeps up with the changing trade landscape. That's why smart businesses partner with FedEx and use the power of digital intelligence to navigate around supply chain issues before they happen."

This passage contrasts traditional "old school" corporate power moves with a more effective business strategy. The speaker argues that outdated tactics, like aggressive eye contact, are less impactful than a sophisticated platform that can adapt to evolving trade conditions. The speaker then positions FedEx as a partner for businesses that leverage digital intelligence to proactively manage supply chain challenges.

"To be clear, that's half price, not half the service. Mint is still premium unlimited wireless for a great price. So, that means a half day. Yeah. Give it a try at Mint Mobile dot com slash switch."

Ryan Reynolds clarifies a promotional offer for Mint Mobile, emphasizing that the advertised 50% off applies to the price of the service, not the quality or extent of the service itself. Reynolds assures the listener that Mint Mobile continues to provide premium unlimited wireless service at a competitive price. He then encourages potential customers to visit their website to take advantage of the offer.

Resources

External Resources

Books

  • "The Dow Theory" - Mentioned in relation to a theory about market alignment between industrial, transport, and utility averages.

Research & Studies

  • The Budget Lab at Yale - Mentioned for their leadership on tariff analysis and initial report on AI.
  • Yale Budget Lab - Mentioned for their work on tariffs and initial report on AI.

Articles & Papers

  • "Single Best Idea" (Bloomberg Surveillance Radio) - Mentioned as the source of conversations with David Rosenberg and Martha Gimbel.

People

  • David Rosenberg - Founder of Rosenberg Research, discussed in relation to the Dow Theory and disinflationary calls.
  • Martha Gimbel - Mentioned as leading the Budget Lab at Yale and discussing AI's impact on the labor market.
  • Tom Keene - Host of Bloomberg Surveillance, discussed the "Single Best Idea" and market trends.
  • Mike McKee - Mentioned in relation to discussing the inflation report.
  • Stephen Myron - Mentioned for his disinflationary call, which David Rosenberg gave credence to.
  • Erning to Desky - Received a shout-out for work on tariffs.
  • Ryan Reynolds - Mentioned in relation to a Mint Mobile promotion.

Organizations & Institutions

  • Rosenberg Research - Mentioned as the company founded by David Rosenberg.
  • Yale Budget Lab - Mentioned for their work on tariffs and initial report on AI.
  • CVS Caremark - Mentioned for a prescription plan with built-in savings.
  • J.P. Morgan Chase & Co. - Mentioned as the parent company for J.P. Morgan Asset Management and Chase for Business.
  • J.P. Morgan Distribution Services Incorporated - Mentioned as a member of FINRA.
  • J.P. Morgan Asset Management - Mentioned for active fixed income ETFs.
  • Okta - Mentioned for securing AI agents' identities.
  • Chase for Business - Mentioned for digital tools for managing business finances.
  • J.P. Morgan Chase Bank, N.A. - Mentioned as a member FDIC.
  • iShares - Mentioned for the Volley active ETF.
  • BlackRock Investments LLC - Mentioned as the preparer of iShares prospectus information.
  • FedEx - Mentioned for their smart platform and digital intelligence in supply chain management.
  • Mint Mobile - Mentioned for a promotional offer of 50% off unlimited wireless.

Websites & Online Resources

  • CMK.CO/STORIES - Mentioned as the website to learn how CVS Caremark helps members save.
  • J.P. Morgan dot com/get active - Mentioned as the website to learn more about active fixed income ETFs.
  • Chase dot com/business - Mentioned as the website to learn more about Chase for Business resources.
  • www.iShares.com - Mentioned to view prospectus for investment objectives, risks, fees, expenses, and other information.
  • Mint Mobile dot com/switch - Mentioned as the place to try Mint Mobile.

Podcasts & Audio

  • Bloomberg Surveillance Radio - Mentioned as the source of the "Single Best Idea" episode.
  • Bloomberg Audio Studios - Mentioned as a producer of podcasts, radio, and news.

Other Resources

  • Dow Theory - Mentioned as a theory about market alignment between Dow Jones Industrial Average, transports, and utilities.
  • Active ETFs - Mentioned as an alternative to passive ETFs for beating benchmarks.
  • Passive ETFs - Mentioned as ETFs that aim to match benchmarks.
  • AI agents - Discussed in relation to identity security and labor market disruption.
  • Jobs Day - Mentioned as a significant event in the economic calendar.
  • October Jobs Report - Mentioned as a delayed economic report.
  • November Jobs Report - Mentioned as a delayed economic report.
  • Inflation Report - Mentioned as an upcoming economic report.
  • Government shutdown - Mentioned as a recent event impacting the market.
  • Transports - Mentioned in relation to the Dow Theory and correlation with oil prices.
  • Utilities - Mentioned in relation to the Dow Theory.
  • Oil prices - Discussed in relation to their inverse correlation with transport margins.
  • Brent crude - Mentioned as the global oil price.
  • West Texas Intermediate - Mentioned as the American oil price.
  • Disinflationary call - Mentioned in relation to Stephen Myron and David Rosenberg.
  • Electricity - Mentioned as a technology that took decades to disrupt the labor market.
  • Internet - Mentioned as a technology that took time to impact the labor market.
  • Volley from iShares - Mentioned as an active ETF offering monthly income and growth potential.
  • iShares' large cap premium income active ETF - Mentioned as the specific name for the Volley ETF.
  • Supply chain issues - Mentioned in the context of FedEx's digital intelligence.
  • Digital intelligence - Mentioned as a tool used by FedEx for supply chain management.
  • Premium unlimited wireless - Mentioned in relation to Mint Mobile's service offering.

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