Weekly global economic update

Week of November 24, 2025

• Mixed employment report for the United States
• More mixed signals about the US economy
• Uncertainty about the Fed’s next move
• Japan: Weaker growth, higher inflation, uncertain monetary policy, and a new fiscal stimulus

Mixed employment report for the United States

• After a period of limited data due to the US government shutdown, the jobs report for September was released recently. For those who believe the economy is in good shape, there was data that could be used as evidence. And for those who believe the economy is weakening and faces significant headwinds, there is also data to justify their position. In other words, it was a mixed report. Let’s look at the data.

The US government releases an employment report that includes data from two surveys: a survey of establishments, and a survey of households. The establishment survey found that, in September, payroll employment increased by 119,000 new jobs from the previous month, a relatively good number and better than many analysts anticipated. Moreover, the much-watched ADP survey of private sector employment had anticipated a decline in employment in September. Meanwhile, the government downwardly revised the payroll numbers for the two previous months. As such, it now estimates that employment fell in both June and August and barely grew in May. As such, the September number was the strongest since April. Yet the combined job growth of the last four months was relatively modest.

Of course, the devil is in the details. Although the overall growth in employment in September was good, it was concentrated in a small number of industries. For example, employment declined in mining, manufacturing, trade and transportation and warehousing, and professional and business services. Employment in information and financial services showed minimal growth. Instead, most of the growth in employment came from health care and social assistance, food services, and state and local government. Those three categories accounted for 99.7% of the growth in employment in September. Such concentration may suggest underlying challenges in the broader labor market.

In addition, the establishment report found that average hourly earnings of workers rose 3.8% in September versus a year earlier, a pace that has held steady for the last six months. Wages are rising faster than inflation, supporting purchasing power. But wages are not accelerating, which suggests that the labor market is not contributing to inflationary pressure. If inflation accelerates sharply in the coming year due to tariffs, and if wages do not keep pace, there will be a loss of purchasing power, potentially influencing consumer spending. Indeed, our own forecast for 2026 anticipates subdued consumer spending due to tariff-related inflation.

The separate survey of households, which includes self-employment, found that, in September, the labor force grew twice as fast as the working-age population as people chose to re-enter the labor force. The result was a modest increase in the rate of labor force participation. Employment, however, grew far more slowly than the labor force. As such, the unemployment rate rose from 4.3% in August to 4.4% in September, the highest unemployment rate since 2021.

What does this mean for Federal Reserve policy? The Fed began lowering the benchmark interest rate earlier this year. Yet in recent comments, Fed Chair Powell signaled a cautious stance on further rate cuts, especially given the evident strength of the economy along with accelerating inflation. There is a widespread expectation that the Fed will lower rates in the coming year, but probably slowly and gradually. The latest jobs report, which offers both positive and negative news, will probably not make a big difference to the Fed’s upcoming deliberations.

Perhaps more important will be the next report on inflation. Yet that won’t be reported until after the next Fed meeting. Meanwhile, there will not be a separate report on employment in October. Instead, the government will include October data in the report on November employment, which will come out on December 16. This will be after the Fed meets.

More mixed signals about the US economy

• The US economy continues to present a complex picture. Just last week the September employment report offered both encouraging and concerning signals. In addition, two more reports add to this ambiguity. On the one hand, the latest report on consumer sentiment from the Conference Board indicates the second lowest level of consumer confidence on record. On the other hand, the latest flash purchasing managers’ indices point to strength. Let’s look at the details.

The Conference Board’s index of consumer sentiment in November was down 4.9% from the previous month and down 29% from a year earlier. It hit the second lowest level on record, the lowest having been in 2022 when, as the pandemic faded, inflation soared. The sub-index of current conditions was down 12.8% from the previous month while the sub-index for consumer expectations increased a modest 1.4% from the previous month.

The Conference Board commented that “consumers remain frustrated about the persistence of high prices and weakening incomes.” Indeed, the sub-index for expectations of inflation in the coming 12 months was 4.5%, although this is down from earlier this year when tariff announcements led consumers to expect inflation of 6.5%.

Meanwhile, S&P Global released preliminary (flash) purchasing managers’ indices (PMIs) for the United States and the results were favorable. PMIs are forward-looking indicators meant to signal the direction of activity in the broad manufacturing and services sectors as well as in the broad economy. They are based on sub-indices such as output, new orders, export orders, employment, input and output pricing, inventories, and sentiment. A reading above 50 indicates growing activity. The higher the number, the faster the growth.

The flash November manufacturing PMI for the United States was 51.9, a decline from the previous month and the lowest reading in four months. Still, it indicated modest growth in activity. The PMI for services was 55.0, a four-month high indicating strong growth in activity. The overall composite PMI was 54.8, a four-month high indicating strong growth. S&P Global commented that “the flash PMI data point to a relatively buoyant US economy in November, signaling annualized GDP growth of about 2.5% so far in the fourth quarter.” In addition, it said that “hopes for further interest rate cuts and the ending of the government shutdown have boosted optimism.”

On the other hand, S&P noted that “manufacturers reported a worrying combination of slower new orders growth and a record rise in finished goods stock. This accumulation of unsold inventory hints at slower factory production expansion in the coming months unless demand revives, which could in turn feed through to lower growth in many service industries.”

Uncertainty about the Fed’s next move

• The policymakers at the Federal Reserve are divided about what to do next. That is not my opinion. It is what the Fed reported in the latest minutes from the last policy meeting. Specifically, the minutes report that “in discussing the near-term course of monetary policy, some participants expressed strongly differing views about what policy decision would most likely be appropriate at the committee’s December meeting.” This could explain why investors are divided about their expectations for Fed policy.

Meanwhile, the president of the Federal Reserve Bank of New York, John Williams, suggested a rate cut in December could be appropriate. Williams said that “I still see room for a further adjustment in the near term to the target range for the federal-funds rate to move the stance of policy closer to the range of neutral.” That is, he sees the current Federal Funds interest rate as being above the neutral rate, which is the rate that neither tightens nor eases monetary policy. Williams said that “looking ahead, it is imperative to restore inflation to our 2% longer-run goal on a sustained basis. It is equally important to do so without creating undue risks to our maximum employment goal.”

Investors immediately responded. The futures market’s implied probability of a rate cut in December increased from 39.1% on November 20 to 74.2% the next day following Williams’ remarks. Still, any decision to cut the benchmark rate will require support from a majority of the members of the Federal Open Market Committee.

Meanwhile, the minutes of the Fed’s deliberations offer a glimpse at how the committee members see the economy. The minutes said that “core inflation had remained elevated as disinflation in housing services had been more than offset by higher goods inflation, reflecting in part the effects of tariff increases implemented earlier in the year.” On the other hand, “A few participants suggested that potential recent productivity gains achieved through automation and AI may help businesses support their profit margins and limit the extent to which cost increases are passed on to consumers.”

On the labor market, while noting insufficient data, the minutes said that “participants generally attributed the slowdown in job creation to both reduced labor supply—stemming from lower immigration and labor force participation—and less labor demand amid moderate economic growth and elevated uncertainty.” Participants expect the labor market to soften in the coming year.

The members also discussed consumer behavior, commenting on a “divergence in spending patterns across income groups, noting that consumption growth appeared to be disproportionately supported by higher-income households benefiting from strong equity markets, while lower-income households demonstrated increased price sensitivity and spending adjustments in response to high prices and elevated economic uncertainty.” Finally, “a few participants remarked on the risk that trade tensions could disrupt global supply chains and weigh on overall economic activity."

Japan: Weaker growth, higher inflation, uncertain monetary policy, and a new fiscal stimulus

• Japan’s real GDP declined in the third quarter. It was the first time this happened since the first quarter of 2024. Specifically, real GDP fell at an annualized rate of 1.8% from the second to the third quarter. The decline was partly due to subdued consumer spending. This was influenced by rising food prices, especially the price of rice, which is a staple of Japanese cuisine. More importantly, net exports made a negative contribution to GDP growth as exports fell more than imports, largely because of US tariffs. On the other hand, government spending increased while business investment expanded at the fastest rate in five quarters.

This is the first report on Japanese GDP since Sanae Takaichi became prime minister. Normally, a weak GDP report would not be welcomed by a new government. Yet in this case there may be a silver lining. That is, the weak GDP report probably reduces the likelihood that the Bank of Japan (BOJ) will raise the benchmark interest rate at its next meeting. The BOJ has been considering an interest-rate increase because inflation remains higher than the BOJ’s target. Plus, the economy has been growing. Yet now, with a decline in GDP, the BOJ could choose to postpone raising rates.

To the degree that there is good news in the GDP report, it is the strong growth of business investment. This is likely due to the participation of Japanese technology companies in the rollout of AI. It is a reflection of Japan’s strength in the technology sector. On the other hand, the weakness of exports demonstrates the vulnerability of Japan’s industrial sector to trade conflict with the United States.

Notably, Japan is not alone in seeing a decline in real GDP in the third quarter, largely due to weakened exports to the United States. Ireland and Mexico also reported a decline, illustrating the broader impact of the US tariffs. Moreover, the European Union (EU) has dampened its forecast for economic growth in the Eurozone in 2026, mainly due to higher-than-anticipated US tariffs.

In addition, Japanese inflation appeared to rebound in October. The government reported that consumer prices rose 3% in October versus a year earlier, the highest rate since July. When volatile food and energy prices are excluded, core-core prices rose 3.1% from a year earlier, higher than in September and the first acceleration since June.

Meanwhile, a member of the policy committee of the BOJ said that a decision to raise the benchmark interest rate is “close.” He said, “I can't say what month it'll be, but in terms of distance, we're close.” Regarding BOJ communication with the new government, he added that “the BOJ has adjusted interest rates to reach the target of stable 2% inflation; I think we've been able to have them understand that we're close to achieving that goal.”

The inflation data and BOJ discussions come as the government just announced a new fiscal package worth the equivalent of US$135 billion. About half of that will be earmarked for tax cuts and other measures meant to offset the impact of rising food prices. About one-third of the package will go toward helping boost important industries such as semiconductors, AI, and shipbuilding.

The expectation of the fiscal package led to a sharp increase in the yield on Japan’s 10-year government bond, which is now at the highest level since 2008. Some investors are concerned that Japan, which already has an extremely high level of government debt relative to GDP, could face challenges with a large issuance of new debt. The rise in bond yields might be a classic case of what economists call “crowding out.” That is, when governments issue debt to fund stimulus, higher yields dampen, or crowd out, investment and offset the positive impact of stimulus on GDP. When former British Prime Minister Liz Truss proposed big tax cuts that would be funded by debt issuance, investors balked, sending bond yields soaring.

Prime Minister Takaichi expressed hopes that the fiscal package will boost economic growth, thereby improving the longer-term fiscal position of the government. She said that “we must achieve fiscal sustainability by increasing tax revenues through a virtuous economic cycle: improving corporate profits and raising personal incomes through wage growth, driven by a growing economy.”

Week of November 17, 2025

• China’s economy shows some weakness while obstacles to exports grow
• The dollar-carry trade supports US dollar
• The potential costs of an AI bubble

China’s economy shows some weakness while obstacles to exports grow

• Although China has been successful in its trade negotiations with the United States and is strengthening relations across Asia, its economy appears to be facing notable challenges. This is based on the latest data released by the Chinese government, which indicates declining investment, weaker retail spending, and slower growth in industrial production. Let’s look at the details.

First, the government reported that fixed-asset investment in the first 10 months of 2025 was down 1.7% from a year earlier. This followed a smaller decline in the previous month. The last time investment declined was during the pandemic. The weakness of investment in recent months was largely due to declining investment in property.

Indeed, the decline in property investment has accelerated, with spending on property down 14.7% in the first 10 months of 2025 versus a year earlier. Other forms of investment have also weakened. Non-property investment grew only 1.7% in the first 10 months versus a year earlier—a modest number. This included a 0.1% decline in infrastructure investment and a 2.7% increase in manufacturing investment.

Meanwhile, the Chinese government reported that retail sales were up 2.9% in October from a year earlier. This was the slowest pace of growth in retail sales since August 2024, and included a 14.6% decline in spending on household appliances and audio-visual equipment as well as a 6.6% decline in spending on automobiles. There was also an 8.3% decline in spending on building materials. On the other hand, there was a 37.6% increase in spending on gold, silver, and jewelry. This was essentially a form of savings. Chinese households appear to have participated in the global rise in the prices of gold and silver. The softness of retail spending came despite a lengthened Super Golden Week holiday.

In addition, the government reported that industrial production was up 4.9% in October from a year earlier. This was the slowest rate of growth since August 2024. Although overall growth was modest, there were some categories that grew rapidly; this included automobiles (up 16.8%) and computers and communications (up 8.9%). Notably, retail spending on automobiles fell even while production increased substantially. This means that either the difference between the two was exported or showed up in increased inventories. It also implies downward pressure on prices. Chinese producer prices have been declining for quite some time.

The data indicates that domestic demand in China remains relatively subdued despite government efforts at stimulus. The government has said that it intends to use fiscal and monetary stimulus as well as structural reforms to boost domestic demand. This is meant to reduce China’s reliance on exports for economic growth.

• Much attention has been devoted to the US-China trading relationship. For years, the United States had raised concerns that China engaged in trade practices that it viewed as harmful to US manufacturers and their employees. The recent agreement between the countries aims to temporarily ease these tensions. However, other nations have also expressed concerns about Chinese trade practices.

Reports indicate that there are now 79 investigations being conducted by various countries regarding possible “dumping” of goods by Chinese exporters and the use of subsidies. Dumping takes place when exporters sell products below cost, often to dispose of goods produced due to excess capacity. Under the rules of the World Trade Organization, if a country determines that its trading partner is engaged in dumping, it can impose anti-dumping duties to offset the difference between the selling price and the cost of production. In addition, if a country determines that an exporting country is subsidizing its exports, the country can impose countervailing duties.

Thus, given the large number of such investigations now underway, China is at risk of facing new tariffs from several key trading partners, including India, Mexico, Brazil, and Japan. The investigations by Brazil and Japan are largely focused on the steel trade, while the investigations by India concern solar power components and mobile phone covers.

There has been considerable public discussion about possible excess production by Chinese exporters. Moreover, there have been reports of price reductions meant to spur increased exports. For China, the possibility of trade restrictions coming from countries other than the United States will likely reinforce the government’s effort of stimulating domestic demand to reduce dependence on exports for economic growth.

The dollar-carry trade supports US dollar

• For much of 2025, the value of the US dollar declined against major currencies. In part, this reflected investor unease about the unpredictability of US trade policy. In part, it might have reflected an expectation of diminished US military support for its allies. And partly, it reflected the expectation that the US Federal Reserve may ease monetary policy while other central banks remain cautious. Yet, in recent months, the dollar has rebounded modestly. This is likely due to the so-called “dollar-carry trade.” Let me explain.

US equities have performed exceptionally well this year, and foreign investors have been eager to purchase them, hoping to enjoy strong returns. To manage potential currency risk, many foreign investors hedged against the risk of dollar depreciation by purchasing futures contracts.

However, some foreign investors have lately borrowed at a lower cost in foreign currencies such as the Japanese yen or the Swiss franc, converted these currencies to US dollars, and purchased US equities. Their hope has been that the return on US equities will more than offset any potential dollar depreciation. In the end, they convert to yen or francs and pay off their cheap loans. This activity has contributed to upward pressure on the dollar, thereby contributing to its recent appreciation.

This strategy remains viable as long as market conditions hold; that is, there are potential events that could undermine the return on this strategy. For example, a sharp correction in AI-related equities could reduce returns significantly. In addition, if the US Fed eases US monetary policy faster than is now expected, it could put downward pressure on the value of the dollar, especially if other central banks maintain their stance. Additionally, if the Bank of Japan renews its earlier path of interest-rate increases, the yen could strengthen, thus reducing the appeal of the dollar-carry trade.

In any event, the existence of the dollar-carry trade suggests that the dollar’s global role remains substantial. The depreciation seen in 2024 led some observers to speculate that the dominant role of the dollar could be declining, especially as China’s government takes new steps to boost the attractiveness of holding Chinese renminbi. The strength of the dollar-carry trade has been based mainly on the strength of the US equity markets, largely driven by optimism around artificial intelligence investments. Thus, it appears that US leadership in emerging technologies is driving renewed interest in US currency.

Moreover, the narrative around de-dollarization in global financial markets appears to be overstated. After all, the dollar remains, by far, the most important currency for trade, central bank reserves, and asset holdings. Plus, there are few viable alternatives. Even though China wants more use of the renminbi, the existence of capital controls in China creates constraints of holding renminbi, thereby limiting its global role. The only other major currency is the euro. In this case, the lack of financial and fiscal integration means that there is not a large, liquid market for euro-denominated government debt. As such, the euro faces difficulty competing with the US dollar. Therefore, even if dollar depreciation resumes, and even if global investors seek to diversify away from US dollars, it seems that its central role will likely continue for the foreseeable future.

On the other hand, perhaps a notable trend in global finance lately has been the relative attractiveness of assets denominated in emerging market (EM) currencies or issued by EM governments. Traditionally, EM debt has been traded at a discount relative to US government debt, largely due to the perceived risk of default. EMs are often seen as relatively unstable, due to perceived default risk and vulnerability to shocks—especially if they are commodity exporters. Advanced economies, on the other hand, were traditionally seen as more stable, fiscally disciplined, and better able to absorb shocks.

This perception has shifted, however. First with the global financial crisis, and then with the pandemic, advanced-economy governments took on lots of debt. Today, the United States, Japan, and many Western European governments now have historically high debt-to-GDP ratios. Moreover, many of these governments suffer from political gridlock and demographic pressures that add to fiscal challenges. Meanwhile, many (but not all) EMs have strengthened fundamentals. Many have tightened fiscal policy, given their central banks independence, liberalized trade and cross-border investment, and encouraged economic diversification.

One result is that the average EM has a much lower debt-to-GDP ratio than the average advanced economy. Consequently, the yield premium on EM debt has narrowed, although it remains; and the fact that it remains suggests an opportunity for investors. If they believe that EM probity will remain, then they might anticipate further relative appreciation of EM debt and EM currencies. Plus, increasing attractiveness of EM debt and other assets could serve these countries well, enabling them to attract capital at a low cost, thereby fueling increased investment that contributes to economic growth.

The potential costs of an AI bubble

• We don’t know if there is an AI bubble, although there is increasing public and private discussion about this issue. What we do know, however, is that, if there is a bubble and it bursts, the consequences could be significant. Estimates from Gita Gopinath, former chief economist and then deputy managing director of the International Monetary Fund, and currently a professor at Harvard University, provide perspective. Referring to the dotcom bubble and collapse 25 years ago, Dr. Gopinath wrote that “a market correction of the same magnitude as the dotcom crash could wipe out over US$20 trillion in wealth for American households—equivalent to roughly 70% of American GDP in 2024.” Given that equity valuations, today, are far greater as a share of GDP than in 2000, this implies that the losses from a correction could be even greater than what took place 25 years ago.

Dr. Gopinath wrote that such a correction could cut US consumer spending by 3.5 percentage points, thereby cutting GDP by 2 percentage points. And this excludes the impact of lower investment. In other words, a significant correction now or soon could push the US economy into a recession.

Also, Gopinath estimates that such a correction could see US$15 trillion in valuation losses for non-US investors, or about 20% of the rest of the world’s GDP. The dotcom crash resulted in a loss of about 10% of the rest of the world’s GDP. Yet, at that time, the rise in the value of the US dollar helped to offset the loss of valuation. That reflected the usual flight to safety in which global investors seek out US-based assets at times of stress. In this case, however, that safety valve might not work, given the US dollar’s recent weakness. Thus, a severe correction could have broader consequences for the global economy.

Finally, Gopinath notes that this situation comes while “growth faces strong headwinds, whipped up by America’s tariffs, Chinese critical-mineral export controls, and growing uncertainty about where the global economic order is heading. With government debt levels at record highs, the ability to use fiscal stimulus—as was done in 2000 to support the economy—would be limited.” Moreover, Gopinath noted that questions about the independence of the Federal Reserve could also weigh on confidence, potentially adding downward pressure on the US dollar along with higher borrowing costs.

Meanwhile, it is reported that investors are becoming more cautious about exposure to AI. As such, the spread on bonds issued by so-called hyper-scalers has risen lately. That is, the difference between the yields on such bonds and the yields on US Treasury bonds has increased, hitting the highest level since early April when the US announced massive tariffs, which unsettled financial markets. It is likely that this rise in spreads indicates that investors are becoming concerned about the issuance of debt to fund the construction of data centers. While the biggest hyper-scalers are well-established companies with considerable cash reserves, investors are likely worried about smaller companies that are making massive debt-funded investments. In addition, some of these investments are funded by suppliers of chips.

And keep in mind that the scale of investment taking place is truly massive. As a share of US GDP, the investment so far in data centers is higher than past investments in broadband, in electricity, in the Manhattan project, and in the Apollo space program. On the other hand, it remains (so far) lower than the investment in railroads in the 19th century. In the past, many investments meant to roll out new technologies resulted in heavy losses and financial crises before delivering long-term gains in productivity, economic growth, and living standards.

Week of November 10, 2025

• Potential signs of weakness in the US labor market
• Chinese exports weaken

Potential signs of weakness in the US labor market

• Although the US government remains shut down, and analysts, traders, and central bankers do not have access to official information about the US job market, the private sector continues to provide useful insights. Two reports published recently signaled slow job growth and an increasing number of layoffs.

First, ADP, a payroll processing company, releases a monthly estimate of private sector job growth that is often, but not always, a good predictor of the official numbers provided by the government. ADP recently reported that, in October, the private sector generated 42,000 new jobs. This was better than the decline in employment that ADP reported for September. However, it is a relatively low number compared to the past year. It is lower than what has traditionally been required to absorb new entrants into the labor force. Yet the sharp decline in immigration implies that fewer new jobs are now required to absorb the growth of the labor force.

According to ADP October saw a decline in employment in manufacturing, information, professional services, leisure and hospitality, and other services. This was offset by strong employment growth for trade/transportation/utilities and for education and health services. ADP also reported that all the growth in employment took place in large companies (those with 500 or more employees). For all other employers, there was a decline in employment. By region, ADP found that the lion’s share of employment growth took place in the Western region of the United States. There was a decline in the Northeast and only modest growth in the Midwest and South.

Meanwhile, Challenger, Grey, & Christmas, an outplacement services company, releases a monthly report on job dismissals at US companies. It’s recent instalment found that, in October, US-based employers announced 153,074 job cuts, the highest number since March and the third-highest number since July 2020 during the pandemic. Challenger commented that “October’s pace of job cutting was much higher than average for the month. Some industries are correcting after the hiring boom of the pandemic, but this comes as AI adoption, softening consumer and corporate spending, and rising costs drive belt-tightening and hiring freezes. Those laid off now are finding it harder to quickly secure new roles, which could further loosen the labor market.”

Challenger noted that 53% of the planned job dismissals in October came from just two industries: warehousing and technology. The firm also reported that not only was the total number of job dismissals high, but an unusually large number of companies announced layoffs. Overall, October saw the highest layoff figures for that month since 2003. As such, it appears that the job market is weakening.

The weakness of the US job market probably has several causes, but there are three that are likely the most important: trade policy, immigration policy, and the AI revolution. First, trade policy has created a high degree of uncertainty for companies that are globally exposed. We already know that the uncertainty has had an impact on strategic investments, especially in supply chains. It would not be surprising if this leads to less hiring and increased efforts at cost cutting.

Second, immigration policy has led to fewer immigrants and an increase in the number of migrants choosing to return to their home countries. This has caused a sharp slowdown in the growth of the working-age population, thereby limiting the opportunity to boost employment.

Finally, there is the question of AI. The disproportionate number of layoffs in warehousing and technology companies suggests that there could be a weakening of investment in AI, especially if companies are concerned about a potential bubble. On the other hand, there remains debate as to whether investment in AI is limiting job opportunities for young college graduates. I wrote about that debate last week.

Markets reacted to the weakness of the job market by selling off AI-related companies. In fact, a group of companies that are heavily involved in AI collectively lost about one trillion dollars in market value in the past week, with four big companies collectively losing US$800 billion in value. What are investors saying? They might be worried about the scale of investment in new data centers. And they might be worried about how this investment is being funded. Lately, much of the investment has been funded by debt. A large amount has been funded by companies that sell equipment to the builders of data centers. This raises questions about the sustainability of this activity, especially if a positive return on this investment does not quickly materialize.

Finally, there might be concern that equities are overvalued. After all, the cyclically adjusted price earnings ratio for the S&P 500 index is now the second-highest ever. The highest was in 1999 at the height of the dotcom bubble, which eventually burst.

Chinese exports weaken

• After having grown at a healthy pace for several months, China’s exports declined in October from a year earlier. Exports evaluated in US dollars were down 1.1% from a year earlier, the first decline since February. Exports to the United States were down 25.2% from a year earlier. This was the seventh consecutive month in which exports to the United States were down by double digits. This, of course, was mainly due to the tariffs imposed by the United States on imports from China. Although the two sides recently reached a temporary deal, historically high tariffs remain in place. This suggests that a rebound in exports to the United States is unlikely.

Moreover, there are reports that many global companies are quickly shifting supply chains to avoid exporting from China to the United States. Indeed, it is reported that Chinese exports to Vietnam are rising sharply as companies attempt to transship products to the United States. As this happens, it softens the impact of US tariffs on US consumer prices. On the other hand, the United States has said there will be steep tariffs on goods that are transshipped from China through Southeast Asia.

Meanwhile, Chinese exports to some other countries declined in October as well. Exports to Japan declined 5.7% while exports to South Korea declined 13.1%. On the other hand, exports continued to grow to the European Union, Latin America, Africa, and Southeast Asia, albeit at a slower pace. Some countries other than the US, such as Mexico and Brazil, have imposed tariffs on imports from China. This implies that China’s export industry is likely to face continuing headwinds.

China’s exports have shifted from lower- to higher-valued products, with exports of cars and technology growing much faster than exports of lower-valued products such as apparel. In October, for example, the number of cars exported rose 25% while the value of exported cars rose only 17%. This means that the average price of an exported car declined sharply. Evidently Chinese exporters are cutting prices to move products. This could be due to weakened demand and/or excess supply.

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."