U.S. Macroeconomic Indicators Vol III, Issue 3

In this Section

How Will Artificial Intelligence (Ai) Change The Job Landscape? Will Ai Create More Jobs Than It Eliminates?
Labor Market Data Shows Signs Of Gradual Cooling
Could A Soft Landing Point To More Robust M&A Activity?

Market Trends and Current Statistics

Key U.S. macroeconomic indicators that are likely to impact brokerages within the insurance industry.

How Will Artificial Intelligence (AI) Change The Job Landscape?

One of the criticisms and fears of AI is its potential to reduce certain jobs or entire roles currently performed by humans. Across nearly all industries, many professionals are worried that their position will be replaced by technology.

This isn’t the first time technology stirred up this type of fear. And it won’t be the last. In the past, technological advancements have eliminated jobs like elevator operator, film developer, or video store clerk. But with these advancements can come new jobs. While video store clerks no longer exist, Netflix alone generated over 10,000 jobs. Other new careers that didn’t exist ten years ago include digital marketing specialist, app developer, and now – AI specialist.

While AI in the workplace isn’t necessarily new, the introduction of generative AI tools such as ChatGPT and Google Gemini has brought AI to the forefront of conversations around human jobs that could be handled by machines.

For all the excitement around this (relatively) new technology, experts disagree on the positives and negatives it may have on jobs. With every advocate that says AI will drive efficiencies, productivity, even creativity in the workplace, others say it promotes additional cyber risks and reduces critical thinking aptitude.

All of this debate leaves many professionals wondering – is AI a positive or negative for the job market?

Viewpoint #1: AI Will Be Positive For Jobs

A global report by McKinsey found that the number of organizations using AI rose sharply in the past year, up to 72%. The chart below shows how AI in the workplace has increased considerably from 2023 to 2024, the largest increase since 2017.

But those high adoption rates for AI are not translating to job reduction rates. Recent data shows there are 8.1 million job openings but 5.2 million people out of work.¹

8.1 Million

Job Openings

5.2 Million

People Out of Work

AI’s known limitations are just one reason many say it won’t reduce jobs. For example, AI is unable to mimic abilities that are innately human: emotional or social skills, nuance of language, such as sarcasm, or building relationships and resolving interpersonal conflict. Therefore, jobs requiring these skills are typically deemed safe from AI replacements, including teachers, counselors or therapists, and relationship managers.

In addition, the technology hasn’t proven it can fully replace a human worker. Experts cite cases of companies reducing jobs due to technology, only to backpedal. For instance, retail chains brought back human cashiers after self-checkout problems (theft and tech glitches) led to a loss of revenue and wide-spread customer complaints. And much of the technology still requires human input. AI chatbots, like Gemini, need human users for it to gather information, make updates, convey errors, and improve responses. ChatGPT even comes with a warning: “ChatGPT can make mistakes. Check important info.” Organizations will need experienced employees to determine if results are valuable, thorough, or relevant. Many companies are even banning ChatGPT due to confidentiality or cybersecurity risks. As a result, some experts are confident mass unemployment isn’t in our future.

“The good news is that changes in the job market move slowly,” says Tom Davenport, a professor of IT and management at Babson College in Massachusetts and author of All in on AI: How Smart Companies Win Big with Artificial Intelligence. “In general, these AI tools will eat away at the margins of jobs, automating certain tasks,” says Davenport. “And even if those tasks are taken over completely, there’s still a need for a human in the loop.”²

Viewpoint #2: AI Will Eliminate Millions of Jobs

Still, other experts believe AI is on track to eliminate not only jobs, but possibly whole fields. Martin Ford, author of The Rise Of The Robots, predicts, “within the next 10 to 15 to 20 years, we are going to see a big disruption. A lot of jobs are going to disappear, and it’s going to be a lot of jobs that we generally don’t normally associate with the idea of robots or automation.”³

Goldman Sachs estimates 300 million jobs will be lost (or reduced) due to AI in the near future.⁴ Further driving home this point are recent layoffs at large employers, such as Google, Duolingo, and UPS, as leaders seek to cut expenses so they can invest in AI technology.

Jobs that require more basic customer service, repetitive processes, or simple administrative tasks are likely to be, or have been, replaced by technology. For instance, bank tellers are almost non-existent due to services like online banking, financial robo-advisors, and digital pay methods. One positive element to the possibility of reduced jobs is that dangerous or highly stressful situations are reduced. Roles that interact with bombs, toxic substances, or even heavy lifting can now use robots instead.

Impacts to The Insurance Industry

Insurers are looking to AI for help assessing underwriting risks, resolving claims and addressing basic customer questions. Since automation technology can now make assessments on clients’ risk profile, and is continually improving, underwriting is in danger of being automated and human underwriters may be less necessary. Still, compliance is a major concern – laws and regulations change frequently, and machines aren’t always caught up on the latest information or are unable to interpret laws in the same way as human experts.

Ultimately, technology will continue to eliminate some jobs, but the workforce has adapted to major industry changes before. While we shouldn’t ignore research showing that certain jobs are at risk of being eradicated, there’s also potential for the creation of new roles.

What we do know is that AI might not be a job killer, but it is certainly a job changer.

Labor Market Data Shows Signs Of Gradual Cooling

While the June jobs data came in slightly ahead of forecast, there are some signs of potential cooling. June nonfarm payrolls increased by 206,000, above the Dow Jones consensus estimate for 200,000. There was a sharp downward revision to May jobs data to 218,000 gains from the initial estimate of 272,000. The unemployment rate increased to 4.1% in June, compared to 4% in May, the highest since October 2021. The strength of the labor market is an indicator of whether inflation is abating and plays a part in the Fed’s decisions around interest rates.⁵

4.1%

Unemployment Rate in June

On June 25, Federal Reserve Governor Lisa Cook stated: “With significant progress on inflation and the labor market cooling gradually, at some point it will be appropriate to reduce the level of policy restriction to maintain a healthy balance in the economy. The timing of any such adjustment will depend on how economic data evolve and what they imply for the economic outlook and balance of risks.”⁶

The labor market may be cooling gradually through slower hiring rather than outright job cuts. Layoffs remain historically low, but hiring has slowed. Job cuts at U.S. employers were down -1.5% in May 2024 compared to April 2024, according to Challenger, Gray & Christmas Inc. The 63,816 layoffs in May decreased 20% from to the 80,089 cuts in May 2023. Year-to-date, U.S. job cuts were down 7.6% year over year.⁷

The U.S. is also seeing slower hiring, with the lowest hiring plans recorded (for Jan-May period) since 2014. The number of job openings decreased to 8.1 million in May 2024 from 8.4 million in March 2024, according to the Bureau of Labor Statistics (BLS), which is the lowest level in more than three years.⁸ In May 2023, there were 9.3 million job openings.

This gradual cooling with pockets of strength may point to a soft landing for the economy. But the latest June jobs data may factor into the Fed’s projections around inflation. During the last Fed meeting in June, Fed officials signaled that they expected to cut their benchmark rate only once this year (compared to the prior projection of three cuts) as inflation remains persistently above its target level. At its June meeting, the Fed also raised its projected core inflation to rise 2.8% year-over-year at Q4 2024, up from the prior March forecast for a 2.6% increase.

The Insurance Industry is Still Facing Hiring Challenges in the Current Environment

Even though the U.S. is seeing softer hiring trends, the insurance industry continues to face hiring challenges. MarshBerry’s 2024 Insurance Agency & Brokerage Compensation Study found that the insurance industry could be facing a significant shortage of skilled workers as soon as 2026 – with projections by the U.S. Bureau of Labor Statistics indicating the industry could lose nearly 400,000 workers due to retirement.

The overall U.S. labor force has diminished in the past 20 years, making it harder for insurance brokerages and agencies to find qualified people, let alone with specific insurance industry experience. Fewer young people entering the workforce, due in part to smaller family sizes in younger generations, means there’s a smaller pool to replace the aging population exiting the full-time workforce through retirement. In addition, others have opted for part-time work, or moved to gig opportunities (such as Uber or Instacart), or caregiving roles, further tightening the available pool. Changes in the workplace, the job market, technology, company growth, or business strategy often necessitate quick adaption by both companies and employees.

Overall, U.S. jobs data is one piece of the puzzle around how the economy is performing and whether inflation will cool. The next jobs and inflation updates will provide more clues about the timing of Fed rate cuts, as well as the stability of the U.S. economy.

Could A Soft Landing Point To More Robust M&A Activity?

Recent data suggest that the labor market is cooling gradually and returning to more normal levels, while inflation is also slowing. This points to the U.S. economy potentially achieving a “soft landing,” where inflation cools and growth slows enough without the high risk of recession. A soft landing and potential interest rate cuts could also point to more robust merger and acquisition (M&A) activity in insurance distribution.

George Casey, global chairman of corporate at law firm Linklaters states: “Now we are seeing that actually the expectation among the major corporates in the U.S. is that there will be more of a soft landing and that the economy is doing better, which gives the confidence to the boards and executive management to look at strategic transactions. So we are definitely seeing much more activity among multinational companies as well as among PE funds, which suggest that M&A activity is up and hopefully this year will be a much stronger year than 2023.”

The Labor Market and Inflation

The labor market may be cooling gradually through slower hiring rather than outright job cuts. Layoffs remain historically low, but hiring has slowed. Job cuts at U.S. employers were down -1.5% in May 2024 compared to April 2024, according to Challenger, Gray & Christmas Inc.⁹ The 63,816 layoffs in May decreased 20% from the 80,089 cuts in May 2023. Year-to-date, U.S. job cuts were down 7.6% year over year.

Currently the U.S. is seeing the lowest hiring plans recorded (for Jan-May period) since 2014. The number of job openings decreased to 8.1 million in May 2024 from 8.4 million in March 2024, according to the Bureau of Labor Statistics (BLS), which is the lowest level in more than three years.¹⁰ In May 2023, there were 9.3 million job openings.

One of the key inflation measures for the Fed showed that May 2024 inflation fell to the lowest annual rate since 2021. The core personal consumption expenditures price index (PCE) increased 0.1% on a monthly basis and 2.6% year over year, in line with Dow Jones estimates. Furthermore, June’s CPI decreased 0.1% from May, declining for the first time since May 2020. ¹¹ This follows May’s CPI data that came in flat month on month, compared to economists’ projections for a 0.1% monthly gain. June CPI rose 3% year over year, compared to 3.1% projected increase and a 3.3% increase in May.¹²

Global Central Banks Have Begun Easing

In June 2024, The European Central Bank (ECB) announced it would cut its main interest rate from 4% to 3.75%. The ECB decided to cut rates in June, despite a rise in eurozone inflation, which rose to 2.6% in May, from 2.4% in April. ECB President Christine Lagarde commented about the eurozone’s economic outlook: “Our overall confidence in the path ahead has been increasing.” The Bank of Canada also cut its main interest rate by 25 basis points in June, as it sees inflation easing and a soft landing in the future.¹³

At its June 2024 meeting, the U.S. Federal Reserve (Fed) maintained the benchmark Federal Funds rate in a range of 5.25% to 5.5%, a move that was widely expected. But policymakers revised their outlook for rate cuts to only one this year, compared to the three reductions forecast in March. However, they see four cuts in 2025, compared to the previous forecast for three. Chair Jerome Powell acknowledged the “modest” progress towards bringing inflation down since the beginning of 2024, noting that they need to see “more good data” to gain confidence inflation is moving sustainably towards its target 2%.

A Better Market for M&A Activity?

With inflation decreasing and the labor market cooling gradually, the macroeconomic situation is looking more stable. Improved market conditions, and the Fed’s continued support for interest rate cuts, suggest that momentum continues to build for an active year for buyers and sellers in the insurance brokerage space.

Sources:

In This Issue

Focused Insights: Is Your Firm Ready For a "What If" Scenario?

Industry Insights

M&A Market Update

Public Broker Performance