Labor Market Analysis: Girard on Weakening Employment and AI Impact

This analysis is based on the CNBC interview with Michelle Girard [1] published on November 5, 2025, where the Head of U.S. at NatWest Markets provided insights on the current labor market dynamics.

Michelle Girard’s assessment of the U.S. labor market highlights two interconnected trends: companies exercising hiring caution due to economic uncertainty and AI’s transformative impact, alongside slowing wage growth that could moderate inflation pressures [1]. This dual dynamic represents a significant shift from traditional labor market cycles, where economic factors were the primary drivers of employment decisions.

The market context validates Girard’s concerns. Recent labor data shows private employers shed 32,000 jobs in September 2025, marking a contraction in private-sector employment [2]. The unemployment rate stands at 4.2% as of April 2025, with forecasts suggesting potential increases to 4.5% in 2026 and 5% in 2027 [3]. Job openings have decreased to 7.2 million in March 2025, down from February’s revised 7.5 million, indicating softening labor demand [3].

Sector performance data reflects investor concerns about economic slowdown. Defensive sectors like Consumer Defensive (+0.64%) and Basic Materials (+0.32%) are outperforming, while cyclical sectors including Utilities (-0.85%), Financial Services (-0.74%), and Consumer Cyclical (-0.59%) are underperforming [0]. This pattern suggests markets are pricing in the economic uncertainty that Girard describes.

: Girard’s emphasis on AI’s impact on hiring represents a crucial insight that distinguishes the current labor market cycle from previous ones. Unlike traditional economic downturns where hiring pauses are cyclical, AI adoption creates structural changes in workforce requirements. This technological disruption compounds economic uncertainty, potentially leading to longer-term shifts in employment patterns across multiple sectors.

: The observation about slowing wage growth carries significant policy implications. If wage moderation continues, it could provide the Federal Reserve with additional room to implement rate cuts, potentially to 3.50%-3.75% in December [4]. This creates a complex dynamic where labor market weakening might actually support monetary policy easing, unlike typical scenarios where strong labor markets constrain policy flexibility.

: The upcoming November 7, 2025 employment report represents a critical validation point for Girard’s assessment [4]. Markets are treating this release as a “critical test” for the dollar and broader economic sentiment, indicating that her views align with broader market concerns about labor market trajectory.

:

• Accelerating Job Losses
  : If the September trend of 32,000 private sector job losses [2] continues, it could signal more severe labor market deterioration than currently anticipated
• AI Disruption Speed
  : Rapid AI adoption could lead to faster-than-expected job displacement, creating structural unemployment challenges
• Wage Deflation Risk
  : While slowing wage growth may help inflation, excessive wage suppression could harm consumer spending and economic growth

:

• Policy Flexibility
  : Slowing wage growth and weaker labor markets could provide the Federal Reserve with additional monetary policy options
• Strategic AI Adoption
  : Companies effectively leveraging AI while managing workforce transitions may emerge stronger competitively
• Sector Rotation
  : Current defensive sector outperformance suggests potential opportunities in less AI-vulnerable industries

The labor market assessment indicates a transitional phase where traditional economic cycles are being compounded by technological disruption. Recent data validates concerns about weakening employment conditions, with private sector job losses and declining job openings supporting Girard’s analysis [2,3]. The combination of economic uncertainty and AI transformation requires more nuanced strategies that account for both cyclical and structural employment changes.

The November 7 employment report will serve as a crucial indicator for validating these trends and could significantly influence market sentiment and Federal Reserve policy decisions [4]. Investors and policymakers should monitor weekly jobless claims, ADP employment reports, and AI adoption metrics for early warning signs of accelerating labor market changes.