Microsoft AI Jobs Shock: 60,000 Buyouts, Who's Next? | Eric Basmajian

Microsoft

Across the shows: 28 speakers in other episodes, 24 bullish and 4 bearish calls, past 30 days

• Eric Basmajian · EPB ResearchNeutral

  Microsoft's voluntary buyouts reflect attrition-driven headcount cuts, not layoffs, which the data won't capture.

  Microsoft's buyouts are voluntary, so they would not count as layoffs. Basmajian sees them as a clear example of the broader pattern: companies are right-sizing headcount through voluntary quits, early retirements and not replacing departing staff, rather than through layoffs. That pattern is consistent with a weak hiring market. Because the departures are voluntary and retirement-driven, they do not show up in layoff data, so the headline job-cut numbers understate the change. He is describing the mechanism, not forecasting Microsoft's share price.

  “The trend that we're seeing is perfectly encapsulated by Microsoft, which is a lot of voluntary quits, a lot of retirements. None of that gets picked up in layoff data.”at 5:41

US jobs & labor market

• Eric Basmajian · EPB Research

  Layoffs are low, but hiring is extremely weak, so job seekers face a harder market than history.

  Triangulating jobless claims, the monthly employment report and JOLTS shows layoffs are low, below pre-pandemic levels. Hiring is the weak part. Basmajian's measure of continued claims per initial claim (a proxy for re-employment) is 8.7 weeks, rising since 2023 and higher than 88% of readings since 1967, including all recessionary periods. Companies are shrinking headcount through attrition, retirements and voluntary quits rather than layoffs, which is not picked up in layoff data. He rejects the idea that gig work is hiding unemployment: surveys show only about 10% of non-filers cite low benefits, and JOLTS layoff data corroborates the low claims. Multiple-job holding is rising a little, but that counts as employment.

  “The data is very clear in saying that layoffs are low, but hiring is extremely weak.”at 5:30

• Eric Basmajian · EPB Research

  Real wage growth near 1% is well below the 2-2.5% people expect, creating a compounding gap that depresses sentiment.

  Wage growth is running about 3-4% while inflation is around 3%, so real wage growth is roughly 1%. That is positive, but over long periods people get used to about 2-2.5% real wage growth. For several years it has averaged about 1%, a gap of about 1.5 percentage points a year. The gap is invisible in any single year, but it compounds into 10-15 points over several years, so people feel their standard of living falling. Weak hiring and low quits keep bargaining power low, which holds wages down. The result is that people are employed but not getting ahead. That makes big-ticket items like housing and cars unaffordable and keeps sentiment surveys depressed.

  “We're seeing wage growth in the three to 4% range, but if inflation is in the 3% range, that means real wage growth is coming in at about 1%.”at 26:50

• Eric Basmajian · EPB Research

  Weak hiring hits younger workers far harder than experienced workers in a slowdown.

  Young workers are the ones who depend only on the hiring market when they leave college, so a weak hiring market falls on them disproportionately. In the most recent slowdown, the unemployment rate for younger workers rose about 300 basis points, from 7% to over 10%. Workers aged 25 and over, who are mostly incumbents, rose by less than one percentage point. Unemployment has come down for both groups this year as the labour market tightened slightly.

  “The unemployment rate for younger workers increased 300 basis points when the labor market was slowing down from 7% to over 10%, but it only increased less than one percentage point for people 25.”at 35:30

• Eric Basmajian · EPB Research

  Structural government debt will keep real wage growth depressed despite positive cyclical momentum.

  Asked for his 2027 real wage growth forecast, Basmajian says the economy has some positive cyclical momentum, but structural factors keep wage growth down. He attributes most of this to the extreme indebtedness of the government sector and its secondary and tertiary effects. He sees no proposals to address these deeper structural issues, so he expects structural real wage pressure to persist even as cyclical momentum improves. He gives no numeric forecast.

  “the economy is dealing with, in my view, structural factors that are keeping wage growth down. Most of that is due to the... the extreme indebtedness of the government sector”at 40:46

AI & jobs

• Eric Basmajian · EPB Research

  AI-driven white-collar layoffs are not yet big enough to trigger a broad recession.

  Historically, all recessions have been caused by construction and manufacturing downturns. Those sectors shed jobs first, and the stress then spreads downstream to services and white-collar jobs, which are laid off only once distress is already significant. Someone arguing that white-collar job losses will drive this recession is making a 'this time is different' case. Basmajian says it may be right, but he finds no evidence yet that white-collar losses are large enough, or have enough multiplier effect, to create a broad recession. He acknowledges that white-collar job changes are visible.

  “I would take the case that this time is not going to be different and any significant labor market stress would still emanate from construction and manufacturing.”at 9:33

• Eric Basmajian · EPB Research

  AI productivity gains are emerging in adopting sectors, with 80-85% of them going to corporate profits.

  A preliminary Census Bureau AI-adoption survey shows the top three adopting sectors (information technology, finance and professional services) are about 15% of the workforce. Their real output per worker shows a clear upward inflection from late 2022, while non-adopting sectors stay on their normal trend. That step change gives credence to real AI productivity, though some of the rise may be post-2022 over-hiring being corrected. Basmajian estimates 80-85% of the gains are going to corporate profits, not wages, which is normal early in a productivity cycle because wages lag. Firms appear to be reinvesting those profits in more AI. Construction, manufacturing, education and health care are expected to adopt more slowly, so productivity there may come later.

  “I estimate about 80 to 85% of the productivity gains are accruing to corporate profits, and the remainder is accruing to real income gains in the sectors that are generating productivity.”at 15:06

• Eric Basmajian · EPB Research

  AI job displacement is structural, but new jobs should eventually replace those lost, though politically hard to say.

  Basmajian separates the unemployment types. Cyclical unemployment is driven by the business cycle, frictional by job switching, seasonal by weather. AI-related unemployment is structural, meaning the jobs disappear. He argues that if the technology delivers real productivity, jobs will be displaced in some sectors, but new jobs will be created, as with the historical shift from agriculture. The transition is painful because creative destruction moves gains to different sectors and creates frictional unemployment before new demand appears. People cannot yet see the new jobs, which makes the message hard to sell politically. He says the economy has automatic stabilisers for the transition.

  “If this technology does yield legitimate productivity, jobs will be displaced in those sectors, but new jobs will be created in the future.”at 20:58

• Eric Basmajian · EPB Research

  AI is automating junior, repetitive roles first, letting one skilled worker replace several juniors.

  Basmajian says early evidence suggests AI tools are automating junior roles where tasks are repetitive and automated first. A highly skilled worker using an AI tool can do the work of several junior people, so entry-level roles are the first to disappear. He ties this to weak hiring that disproportionately hurts younger workers, and to the broader problem of young graduates struggling to get the experience that later roles require.

  “Again, is all early evidence, but the jobs that tend to be automated away first are what seems like more of the junior roles where the tasks are more automated and repetitive, versus someone that may come in with a high degree of skill that using an AI tool can do the job of several junior people with one person.”at 37:25

US growth & recession risk

• Eric Basmajian · EPB Research

  Near-term US recession risk is low because construction and manufacturing jobs are rising, not falling.

  Construction and manufacturing employment have historically been the leading recessionary signal, since they are the interest-rate-sensitive sectors where downturns begin. Right now they are doing well: nonresidential construction is adding jobs, and durable goods manufacturing jobs have risen over the last six to eight months. Residential construction is losing jobs, though only about 1% year over year. That is the one watch area. Because the signal the labor market normally sends is absent, he judges near-term recession risk low.

  “We don't see that at all right now. We see the opposite... recession risk in the very near term is low with the one watch area being residential construction.”at 11:51

• Eric Basmajian · EPB Research

  Economy can absorb a December Fed hike; recession risk is not on the immediate horizon.

  Basmajian's basket of leading indicators is improving, and corporate profitability remains strong across all corporations. That makes the economy able to withstand higher interest rates in the short term. Even if the Fed raises rates in December, the economy has time to digest it over the next couple of quarters without leading indicators rolling over. Recession risk would only become a concern after tightening continues and residential construction, manufacturing and the labor market weaken, which he does not see in the next six months.

  “the economy is likely to be able to withstand higher interest rates here in the short term. We will get to a point where they tighten policy enough that we start to see those leading indicators come down... But I don't see that on the immediate horizon, the next couple of quarters, the next six months.”at 39:32

AI infrastructure & data centers

• Eric Basmajian · EPB Research

  The data center build-out is adding construction jobs and a manufacturing multiplier, supporting US employment.

  Over the past year, nonresidential construction has added more than 100,000 jobs, mostly from data centers. The AI build-out also creates a multiplier in durable goods manufacturing, such as transportation equipment, business equipment and cooling equipment, and those manufacturing jobs have risen over the past six to eight months. Basmajian says this is a key reason construction and manufacturing are strong. Data centers are also making it hard for homebuilders and construction firms to fill positions, because HVAC installers and crews are in demand on data center sites.

  “Over the past year, we've seen over a 100,000 jobs gained in nonresidential construction, which is mostly data centers... the AI build out is causing a multiplier effect through even manufacturing sectors.”at 10:52

US stock market outlook

• Eric Basmajian · EPB Research

  Low near-term recession risk makes him less concerned about large, sustained declines in broad US equity indexes.

  Basmajian's view of the equity market follows from his recession call. With layoffs low, construction and manufacturing employment rising, and no broad labour-market distress, recession risk in the near term is low. He therefore is less concerned about large, sustained declines in the broad equity indexes. He does not give a specific index level or timeframe for this view.

  “Which makes us inclined to be less concerned about big, large sustained declines in the big, broad indexes... Equity indexes.”at 21:52

Tariffs & trade policy

• Eric Basmajian · EPB Research

  Tariff policy has been erratic: floated at 20-50%, the effective rate hit about 11% and then eased to about 8%.

  Tariffs were floated at 20%, 30% and even 50%, but the effective US tariff rate rose only from about 2.5% to about 11%, and has since come back to about 8%. Policies were floated and then withdrawn, for example tariffs removed after coffee bean prices rose. Basmajian says this erratic policy path, and the government's growing role in economics, creates uncertainty that hits small businesses harder than large firms. Large firms can anticipate policy, get access and manage integrated supply chains.

  “Tariffs were floated at 20%, 30%, even as high as 50%... the effective tariff rate moved from about two and a half percent to about 11%, and it's already come back to about 8%.”at 32:04

US rates & the Fed

• Eric Basmajian · EPB Research

  Fed will likely hike in December and must keep tightening to transmit into the real economy.

  Basmajian expects the Fed to raise rates in December, which he says they likely will. Every incremental tightening slows the economy more. For the tightening to hurt, he argues the Fed must keep tightening so that it transmits through residential construction, manufacturing and broader construction, and then weakens the labor market. Only then would a recessionary scare become likely.

  “even if the Fed does raise rates in December, which they likely will, the economy still has some time to be able to digest that without the leading indicators and early sensitive parts of the economy rolling over. What I would be looking for is the Fed to continue tightening monetary policy”at 39:49

US deficit & government debt

• Eric Basmajian · EPB Research

  US government is too big and indebted; it is a detriment that weighs on growth and wages.

  Basmajian judges the US a weak spot on three measures: total debt to GDP, the deficit as a share of GDP, and government spending as a share of GDP. He says it is not as bad as France. He argues most developed economies, including the US, have passed the point of diminishing returns, where government is beneficial in small size, and is now at a size that is a detriment. The resulting negative externalities include depressed real wages across the private sector, and he sees no real proposals to escape these structural issues.

  “The US government is pretty pretty weak spot on all three of those metrics. Not as bad as France... when the government gets this big across all three of those metrics, it creates a lot of negative externalities, and one of them is this depressed real wages”at 41:39

US housing

• Eric Basmajian · EPB Research

  Residential construction activity, not home prices, is the key recession indicator to watch.

  Basmajian says home prices are not what matters for business cycles and recessions. Residential construction activity is what ties to jobs and carries the multiplier effect. It is weak now, but not weak enough to offset the strength in nonresidential construction and manufacturing. He says the relationship across those sectors is the main thing he watches, and that the economy still shows positive signs for now.

  “it's not home prices you should be watching. It's the actual residential construction activity. That's what's tied to jobs. That's what has the multiplier effect. It's weak right now, but it's not weak enough to offset the strength we're seeing in nonresidential construction and manufacturing.”at 43:22