What 26 Million Paychecks Reveal About the Economy (With…

PodcastOn InvestingNela RichardsonOct 9

Nela Richardson discusses how AI is changing the value of work and how ADP’s payroll data tracks employment, pay, and sector-level hiring. She also links weakened purchasing power and uneven wage gains to consumer sentiment, while distinguishing the borrowing costs and inflation measures that matter to households and policymakers. Separate market discussion focuses on rising yields, their pressure on stocks and riskier borrowers, and continued foreign demand for Treasuries.

Labor Market Artificial Intelligence Consumer Spending Inflation Interest Rates Fixed Income

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Key Takeaways

Nela Richardson says AI is changing the value of tasks within occupations: explaining technical details, once a high-value IT task, began losing value after ChatGPT emerged in October 2022. She also reports that employment among 22-to-25-year-olds in AI-exposed fields has contracted about 3% annually since ChatGPT’s rollout, while arguing that workers’ skills affect how effectively technology translates into productivity gains.

ADP and BLS employment figures can diverge because ADP counts people on payroll while the BLS survey counts people paid during a particular week; both aim to project the QCEW benchmark, which is released with a six-month lag. Richardson says September’s stronger hiring trend had been building for four weeks, with gains in health care, leisure and hospitality, manufacturing, and construction, while finance and professional business jobs remained weak.

Richardson distinguishes base pay, which she says better reflects labor-market tightness or inflation, from gross pay, which is more activity-based and can rise with extra hours or off-cycle bonuses. That distinction matters alongside her estimate that 43% of workers experienced real wage declines averaging 8% from 2021 to 2024, helping explain why more than 30% of job changers also lost ground in real terms and why diminished purchasing power weighs on consumer sentiment.

Richardson describes strong AI-buildout demand at one manufacturer alongside difficulty staffing second and third shifts, with overtime pay rising in some upstream industries but not across the board. She says manufacturing has relatively little monthly turnover—new hires generally account for under 5% of employment, versus 15% to 20% in education and health care—in part because older, highly skilled workers leave less often and are harder to recruit away.

TECHNOLOGY

Shifting IT Tasks — Nela Richardson says explaining technical details was a high-value IT task until ChatGPT emerged in October 2022. AI could then perform work it could not do five years earlier, changing the value of tasks within an occupation.

“So there are some high value tasks that are actually losing value with the inception of chat GPT in October 2022. One of those things is explaining technical details…”—

AI-Exposed Jobs — Nela Richardson says employment among 22-to-25-year-olds in AI-exposed fields, including customer service and software development, has contracted about 3% annually since ChatGPT’s rollout. Non-business fields are not seeing the same contraction, while employment among workers later in their careers is growing.

“And what we're seeing, similar to some other research out there, is that AI's impact seems to be showing up in early career for AI exposed fields, like customer service…”—

ECONOMY

Borrowing Costs — The speakers distinguish borrowing costs by loan type. Mortgage rates generally track long-term Treasury yields and expectations for Fed policy, growth, and inflation; HELOC rates usually reflect short-term rates influenced by the Fed; auto loans tend to track short- and intermediate-term Treasury yields. Mortgage rates need not follow the Fed’s decision at a given meeting, and high borrowing costs alongside high home prices make housing difficult to afford.

“Mortgage rates are generally tied to long term treasury yields, like the ten year treasury yield, maybe the thirty year treasury yield…”—

Earnings Call Signals — The speakers say company earnings calls can offer macroeconomic signals beyond reported results. Management’s outlook for profits, margins, productivity, and AI capital expenditures can indicate how business conditions may affect the broader economy.

“And the last thing I'll say is earning seasons are always important. You know, earnings are the mother's milk of stock prices…”—

Credit Risks — The speakers say higher borrowing costs pose particular risks to lower-rated borrowers, including CCC-rated and low-single-B companies with volatile cash flows or thin margins. Even a one- or two-percentage-point increase can materially affect their ability to pay, while smaller companies with floating-rate debt can face higher costs soon after Fed hikes. They do not view broad credit markets as a risk and remain favorable on investment-grade and high-yield corporates, while watching the lowest-rated borrowers.

“If you're a junk rated borrower, specifically the lowest rated companies like CCC or even the low end of the single B area spectrum, they tend to have pretty volatile…”—

MARKETS

Bond Yield Drivers — Developed-market bond yields have risen year to date. The speaker attributes the move in the US, and likely other economies, to shifting expectations for Fed policy and resilient growth, while distinguishing those factors from debt-sustainability concerns in some other countries.

“Year to date, we've seen most global bond yields from developed market economies rise, When you look at what's happening in The US, and I think for most other economies…”—

Yields And Stocks — The speaker identifies the 10-year yield as the bond-rate measure most relevant to stock-market correlations. Yields and stock prices remain negatively correlated over both one-year and one-month rolling horizons. Rising yields tend to hurt stocks more than falling yields help them.

“Well, at its broadest level, the yield that is most relevant to the stock market in terms of things like correlations is the ten year yield…”—

Treasury Yields And Affordability

The hosts explain why yields have risen globally, how long-term Treasury yields influence mortgage rates, and why higher borrowing costs are squeezing housing affordability.

Rising Yields And Stocks

The hosts connect higher yields with pressure on interest-sensitive sectors and weaker, highly leveraged firms, while noting that technology concentration can mask the strain in broad indexes.

ADP Payroll Data

Lizanne introduces ADP economist Nela Richardson, who explains ADP’s large paycheck-based dataset and how its administrative employment measures complement BLS survey statistics.

Jobs And Sector Hiring

Richardson describes stronger September ADP hiring, persistent sector differences, and modest technology employment, while explaining why monthly ADP and BLS readings can diverge.

Paychecks And Bonuses

Richardson distinguishes base pay as a signal of labor-market tightness from gross pay as a measure of activity and purchasing power, and explains how unexpected bonuses can retain workers.

Manufacturing Overtime Premiums

Richardson says AI-related demand is boosting overtime in upstream manufacturing, while labor shortages and an aging workforce make pay premiums and job changes more informative than headcount alone.

Wages And Consumer Sentiment

Richardson argues that lasting real-wage losses have weakened purchasing power and sentiment, while the hosts emphasize that households experience inflation through elevated prices for essentials.

AI And The Value Of Work

Richardson reports weaker employment for younger workers in some AI-exposed fields and describes research that tracks how AI changes the value of individual job tasks.

AI Needs Skilled Workers

Richardson draws on past productivity cycles to argue that technology delivers broad gains when workers have the skills to use it, and expresses optimism about preparing young people for AI.

Inflation Data And Treasury Demand

The hosts preview small-business, housing, inflation, and Fed data, and note that foreign official demand for Treasuries has remained steady despite heightened fiscal concerns.