Weekly global economic update

Week of November 3, 2025

• An update on the impact of AI on the labor market
• The US Fed cuts rates but urges caution going forward
• The United States and China reach a deal
• Southeast Asia is becoming front and center in the US-China dispute

An update on the impact of AI on the labor market

• Although the US unemployment rate remains low, job market conditions for young college graduates have worsened compared to other cohorts. This could be due to artificial intelligence. That is, it is likely that some companies are reluctant to hire new college graduates when, potentially, machines can do much of the same work. Let’s look at the numbers:
  • Normally, unemployment among college graduates is lower than the for those without a college degree. Similarly, the unemployment rate is higher for young workers than for experienced workers. These patterns make intuitive sense. So, where does this leave young college graduates? For them, it is usually the case that their unemployment rate is lower than the overall unemployment rate. But that is not the case according to the latest employment report from the government. As economist Paul Krugman recently wrote, this is “not the worst job market college graduates have ever seen. It is, however, the worst such market compared with workers in general that we’ve ever seen, by a large margin.” He said that nobody knows for sure why this is happening.
    
  • Not only is unemployment for college graduates relatively high compared to other cohorts, it is at its highest level since 2014—excluding the brief pandemic period. The labor market hiring rate is unusually low as well (which mostly affects young job-seekers). According to the Job Openings and Labor Turnover Survey (JOLTS), the hiring rate is now the lowest since 2010, when the economy was just emerging from a recession after the global financial crisis.

So why is this happening? While we don’t know with certainty, some academic economists have offered plausible explanations; the most likely being the development of generative AI. When companies hire, they are making a long-term investment in human capital. If they now believe that the technologies in the pipeline will be able to conduct many of the tasks that new college graduates routinely do, then why hire them? Plus, the overall hiring slowdown might be due to anxiety about the outlook for the economy.

So what does this mean for the future of business organizations? After all, if they stop hiring young graduates who can use common office software and write short reports, confident that those functions can be handled by a machine, how will they develop people to become organization leaders over time? I don’t know the answer to that question, but it will need to be addressed.

Meanwhile, college students might have to rethink what they study. For years, STEM fields (that is, science, technology, engineering, and math) were popular. Yet machines will be able to do most of STEM, thereby potentially reducing demand for STEM employees. But gen AI will not be able to lead people, make strategic decisions, show empathy, generate enthusiasm, communicate goals, or innovate. These will remain human functions. The question then is what should a student study to develop these capabilities? Perhaps the answer will involve a range of fields like literature, history, psychology, or anthropology. We’re clearly in the early days of what could be a revolution in thinking about corporate organizations and academic goals.

• What about AI’s impact on the overall job market? There is some evidence that many large companies are now dismissing existing workers, partly due to plans to further utilize AI.

Challenger & Grey does a monthly survey to determine how many jobs are being eliminated and how many jobs companies and government agencies plan to create. The latest survey found that, in September, 54,064 US jobs were eliminated; of these, 13,622 were cut due to businesses or facilities closing; 8,930 were cut due to market or economic conditions; and 7,000 were cut due to AI implementation. For the first nine months of 2025, 17,375 jobs were cut due to AI. This was out of over 900,000 jobs cuts. Thus, the September number indicates that AI is quickly becoming a far more important reason for dismissals than before.

The acceleration in AI-related job dismissals comes at a time when overall dismissals are up sharply. The survey found that, in 2024, the number of dismissals in the first nine months was 609,242, while, in the first nine months of 2025, it was 946,426—a 55% increase. This was largely due to DOGE, accounting for roughly one-third of dismissals so far in 2025.

Alternatively, a Yale Budget Lab study found that AI is not yet a significant cause for job loss, stating that “metrics indicate that the broader labor market has not experienced a discernible disruption since ChatGPT’s release 33 months ago, undercutting fears that AI automation is currently eroding the demand for cognitive labor across the economy.” It acknowledged that AI will probably have a big impact on the labor market, but it will take time before that happens.

Still, there is anecdotal evidence that some companies are replacing workers with AI. For example, a tech startup in India is selling an AI tool to companies operating call centers—meant to enable these companies to cut their workforces by 80% and still deliver call center services. Several large US-based companies have also announced sizable layoffs, with the intention of using technology as a substitute for labor.

Clearly, something is starting to happen, although not necessarily on a scale that would move national or global numbers. Yet, this activity will likely accelerate in the future. The real question, then, is whether or not companies that make this transition obtain significant productivity gains. In the 1980s and early 1990s, many companies purchased computers for their workers, yet, we didn’t see gains show up in productivity numbers until the late 1990s. It took time for companies to figure out the most effective and efficient ways to use new technology. Something similar could happen again.

The US Fed cuts rates but urges caution going forward

• The Federal Reserve cut its benchmark interest rate by 25 basis points, as expected. It is now between 3.75% and 4%—the lowest since November 2022. In response, US equity prices were up sharply while bond yields grew slightly. The vote was not unanimous. Fed Board Governor Stephen Miran voted for a 50-basis-point reduction while Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City, voted to leave the rate unchanged. Miran is the newest member of the board and is considered on the list of potential appointees as Fed chair.

Going forward, the Fed has signaled the likelihood of further rate cuts, but the speed at which it happens remains somewhat uncertain. That is both because of uncertainty about economic data and who President Trump will appoint to replace Chair Powell. Moreover, the government shutdown means that, at least briefly, the Fed will be flying blind, unable to obtain data it routinely uses in its deliberations. The next policy committee meeting will be in December.

Notably, both Fed and private sector economists expect inflation to accelerate in 2026. This would not be a time to cut interest rates. Yet, the Fed evidently believes that the inflationary impact of tariffs will be temporary. Moreover, it has expressed concerns about job-market weakness. The Fed has a dual mandate from the Congress to minimize inflation and maximize employment—for now, it appears that the Fed is focused on the latter. Still, some committee members have expressed concern about the persistence of inflation. As such, a gradual benchmark rate reduction seems to be the most likely scenario.

Meanwhile, Fed Chair Powell held a news conference following the rate cut announcement. He said that, contrary to market expectations, another rate cut this year is not a certainty. He said, “I always say that it’s a fact that we don’t make decisions in advance. But I’m saying something in addition here: that it’s not to be seen as a foregone conclusion—in fact far from it.”

Evidently, some Fed leaders are concerned about inflation and believe that the US economy is stronger than they realized (although Powell was quick to point to a significant labor market slowdown). Powell said that a “growing chorus” of Fed leaders are becoming hesitant to consider another rate cut this year and pointed to “strongly differing views” among committee members. Although US equity prices had risen sharply in anticipation of the rate cut, prices fell following Powell’s press conference. The futures market also implied that the probability of a December rate cut declined from 87% last week to 74% now.

Powell’s “far from it” statement was probably meant to provide the Fed with flexibility when it meets again in December. By keeping investors guessing, they won’t shock investors regardless of the decision they make. Still, investors clearly still expect a rate cut.

Also, the government shutdown will likely limit the information available to the Fed leadership when they meet in December. Powell asked “what do you do when you’re driving in the fog? You slow down.” Finally, I suspect that Powell is keen to demonstrate his independence to financial markets. He probably wants to avoid the impression that, if he keeps cutting rates, he is doing so under pressure from the administration as it would undermine Fed credibility.

The United States and China reach a deal

• The United States and China reached an agreement on a temporary trade truce: Under it, China agreed to postpone restrictions on rare earth mineral exports, resume purchases of US soybeans, and cooperate with the United States to reduce fentanyl shipments from China to the country. The United States, in turn, agreed to reduce the average tariff on imports from China by 10 percentage points to 47%—still a very high number. The United States also agreed to halt an investigation of China’s shipbuilding industry for a year. It also agreed to postpone the extension of its technology export controls to subsidiaries of Chinese companies. Finally, the Chinese government said that the United States agreed to postpone port fees on ships built in China or owned by Chinese companies.

The two sides agreed that the deal stands for a one-year period. Thus, global companies operating cross-Pacific supply chains and desiring permanency in the trading environment, will likely be disappointed. Indeed, President Trump said, “Now, every year, we’ll renegotiate the deal, but I think the deal will go on for a long time, long beyond the year.” At the meeting in South Korea between US and Chinese leaders, Premier Jinping said that “both sides should focus on the bigger picture and the long-term benefits of cooperation, rather than fall into a vicious cycle of mutual retaliation.”

The deal leaves a very high average US tariff rate in place on Chinese imports. Consequently, it seems likely that the decline in Chinese exports to the United States will continue and so will supply chain diversification. Moreover, the temporary nature of the deal will likely inhibit companies from making long-term commitments to trade and/or cross-border investments.

Southeast Asia is becoming front and center in the US-China dispute

• In Southeast Asia, there used to be a view among governments that a close relationship with the United States provided economic and political benefits. Economically, the United States was encouraging companies to “de-risk” from China by reducing investment there and, commensurately, boosting investment in Southeast Asia, providing more opportunities for Southeast Asian countries to export to the United States. Southeast Asian nations had been enthusiastic about the Trans-Pacific Partnership—a free trade agreement among Pacific Rim nations, championed by the United States.

Things began to change in 2017, when newly elected President Trump withdrew from the partnership. Still, Southeast Asian countries found solace with the RCEP—a regional free trade agreement championed by China. Exporting to the United States and enjoying a political and military partnership with the country remained top of mind. Yet this year, when the United States proposed historically steep tariffs on Southeast Asian countries, a new attitude developed: It became clear that countries in the region could not depend on easy access to the US market. Meanwhile, China asserted itself and sought to broaden trade relationships in the region.

The region’s main organization is ASEAN (Association of Southeast Asian Nations), comprising 10 countries that range from poor (Laos, Cambodia) to middle-income (Malaysia, Thailand), to very rich (Singapore). Collectively, ASEAN has a population of roughly 680 million people and one of the world’s biggest economies. Moreover, the region has seen strong economic growth, with significant improvements in living standards. And it has developed massive manufacturing capacity in recent years. Thus, there is good reason for both China and the United States to woo ASEAN.

In his recent visit to Malaysia to attend the ASEAN Summit, President Trump said “our message to the nations of Southeast Asia is that the United States is with you 100%, and we intend to be a strong partner for many generations.” But this followed his Liberation Day announcement of tariffs in excess of 40% on several ASEAN members. Although these have been negotiated down to around 20%, they are still significant and will likely lead to substantial shifts in trade patterns and supply chain design. Singapore’s Prime Minister Lawrence Wong said, “the tariffs have certainly impacted America’s standing in Southeast Asia—there is no doubt.” Still, the United States reached a rare earth deal with Malaysia and Thailand.

At the same time, China is seeking to boost relations in the region. At the Kuala Lumpur ASEAN summit, an ASEAN-China Free Trade Area agreement was signed, which deals with digital transformation, sustainable energy, and trading opportunities for small businesses. In signing it, the Chinese premier warned that “unilateralism and protectionism are seriously interfering with the economic and trade order, external forces are interfering in the region, and many countries have been unreasonably subject to high tariffs.”

Currently, ASEAN imports a great deal from China and exports a great deal to the United States: The two are related in that many inputs made in China are sent to ASEAN for final assembly and exported to the United States. Yet the unreliability of US trade relations will lead ASEAN businesses to seek more export opportunities elsewhere, likely in China and other locations. As ASEAN pivots more toward China, it could influence government attitudes toward political and military cooperation with the United States.

Finally, at the ASEAN Summit in Kuala Lumpur, it was agreed that ASEAN would boost internal integration. Specifically, the existing ASEAN Trade in Goods Agreement was upgraded to improve customs procedures and increase the number of tariff-exempt goods. ASEAN has always had the goal of economic integration, but obstacles have often emerged. And these countries have mostly traded outside the region, rather than within—with only 21% of current regional trade being internal. Yet, as the region becomes more affluent, there are greater opportunities to develop an internal market. Doing so also reduces dependence on external powers. An ASEAN leader said that “rising protectionism and shifting supply chains remind us that resilience depends on ... adaptability."