FT: U.S. Economy Structurally Overheating, Labor Supply Contraction Is the Main Driver
Nashnova编辑部
Economist Ryan Avent argues in the FT that recent US data cooling masks a supply-side squeeze, not weakening demand — a shrinking workforce, AI absorbing credit, and structurally elevated rates leave little room for a September cut.
Jobs are slowing — why doesn't that mean the economy is weakening?
The July jobs report revised May and June payrolls down by over 100,000 combined; July itself saw an outright decline. Growth has slowed for four straight months.
This means → the weakness is on the supply side, not the demand side. Year on year, the US labour force shrank by 1.3 million, yet employment is up by over 300,000.
In plain terms = employers aren't pulling back — there are simply fewer people available. Ageing demographics plus roughly 50,000 deportations a month are draining the labour pool.
Jobless-insurance claims remain low; roughly 1.0 unemployed person per opening — still strong by pre-pandemic standards.
Consumer spending is cooling — where is the money going?
July retail sales fell in nominal month-on-month terms, decelerating for two consecutive months. Consumer spending's contribution to GDP growth has visibly receded from its post-pandemic dominance.
This means → the growth engine is shifting. In recent quarters, AI-related investment has contributed to GDP almost as much as personal consumption.
The mechanism is interest rates: since the Fed began hiking in early 2022, consumer spending's growth contribution has fallen by roughly 50 basis points; household debt-to-GDP dropped from nearly 63% to below 58%.
Federal debt-to-GDP rose from 103% to 108% over the same period; corporate borrowing re-expanded as AI absorbed credit on a massive scale. In plain terms = household spending is being "crowded out" by government outlays and AI investment via the high-rate channel.
Why can't rates come down?
Avent's core thesis: the economy is constrained by supply-side bottlenecks — labour, AI inputs, and loanable funds are all tight — not by insufficient demand.
This reflects a direct consequence: rates are being held up by the real economy's appetite for capital. Since the Middle East conflict began, 10-year and 30-year Treasury yields have risen by roughly 70 and 60 basis points respectively.
Breakeven inflation rates — a market-derived gauge of expected inflation — have stayed relatively stable, indicating the yield rise is driven not by inflation fears but by sheer borrowing demand.
A September rate cut — realistic?
Under Avent's framework, the odds of a cut depend on whether AI investment and government borrowing materially cool.
This means → neither shows signs of contracting — AI capex is still accelerating and the federal deficit is still widening.
In plain terms = markets are pricing in a cut, but all three supply-side locks (labour, capital goods, funds) remain firmly in place. The bet is on expectations, not on reality.
Content is for reference only, not financial advice.