Axios Markets

The workers most likely to be replaced by advances in artificial intelligence are those in lower-wage occupations, concludes a new report from the McKinsey Global Institute, Emily writes.

The big picture: This isn't necessarily a story of mass job loss — these workers are likely to find higher-paying jobs in different industries, part of a broader trend already underway.

• Meanwhile, higher-wage earners will also be affected by AI, but they're less likely to get thrown out of work. "Your job will shift and change, but you won't have to find a new job," says Kweilin Ellingrud, a McKinsey Global Institute director and report co-author.

State of play: Automation, accelerated by the needs of the pandemic era, has already begun displacing low-wage workers across four different fields.

• Those include jobs in office support, food service (waiters/waitresses/fast-food checkout), customer service (retail clerks), and production workers who move material or work machines.
• You've already seen some of this: Ordering kiosks at McDonald's replaced front-line staff; self-checkouts replaced CVS cashiers; and front-line office staff never came back after the fully remote days of COVID.
• AI will turbocharge these kinds of changes. "The in-going model was about 21% of activities can be automated away. When we layer on generative AI that jumps to 30%," Ellingrud says.

By the numbers: 11.8 million workers in these occupations may need to find a new kind of job by 2030, the report says.

• Some will move into higher-paying roles in the same industry (a grocery cashier becomes a manager, say); 9 million may shift industries entirely.
• Those earning $38,200 a year or less are up to 14 times more likely to need to change occupations by 2030 than the highest earners.
• Jobs in these categories, making up the two lowest wage quintiles, are disproportionately held by those with less education, women and people of color.

Key point: The jobs in these four categories make up 39% of jobs in the U.S., per the report. The defining question is what happens to them.

• "It's the biggest question facing our workforce today," says Ellingrud.

Zoom out: Based on what's happened in an incredibly dynamic labor market over the past three or so years, there's evidence of what could play out as these job categories diminish — and it's a positive story.

• From 2019 to 2022, 8.6 million workers changed occupations, some switching fields entirely, per McKinsey's analysis. More than half of those shifts were among workers in these four categories.
• The McKinsey report finds that AI and advancement in tech will likely spur job growth in higher-paying fields, and given current demographic trends (there's an overall labor shortage in the U.S.) that means employers are going to need those displaced workers.
• The report suggests employers loosen some requirements in hiring — around education, for example, and that they expand training.

The bottom line: The transition could be bumpy, but advancements in technology might mean many workers transition to better-paying jobs.

🛢️ Shell reports 56% fall in Q2 profits, on falling energy prices. (Reuters)

🎯 SEC targets AI in new Wall Street internet reforms plan. (Axios)

🏦 How PacWest was rescued. (Bloomberg)

The Fed lifted short-term interest rates again yesterday, pushing them to their highest level since early 2001 — and reiterated that more hikes were possible this year, Matt writes.

Why it matters: It suggests the Fed is less optimistic than many investors that the battle with inflation is completely over.

Context: The Consumer Price Index has plunged from showing roughly 9% year-over-year price gains in June 2022 to just 3% last month.

• The S&P 500 is up about 19% this year, on growing optimism that the Fed's effort to fight inflation with rate hikes could be nearly over.
• Yes, but: After Fed chair Jerome Powell successfully wordsmithed his way through yesterday's press conference without giving anything away about his plans for the rest of the year, the index was virtually flat on the day.

What he's saying: Powell stressed that policymakers at the central bank would watch incoming economic reports and make decisions about interest rates based on that information.

• "It’s really going to depend on what the data tell us. That’s the best we can do,” he said.

A quick update on an odd market dynamic that we spotlighted a couple of days ago ... median home prices for existing homes have officially surpassed that of new homes, Matt writes.

Why it matters: It's a flip-flop of a long-standing relationship — one of many ways the Fed's historic rate hikes are transforming markets.

What happened: New data released yesterday showed the median new home price in June was $415,400 — a hair underneath the existing-home median price of $416,000 (released last week).

• Context: With mortgage rates still hovering around 7%, homeowners are holding onto homes financed at low rates, squeezing the supply and keeping prices at nosebleed levels.
• Meanwhile, homebuilders are more willing to sell affordable smaller houses to tap into demand from frustrated buyers.

The bottom line: Prices for older houses and newer ones are converging in a remarkable way.

With stocks less than 5% from a new record, we solicited thoughts from the loyal ranks of Markets readers on when we'd touch new highs.

Why it matters: According to convention, stocks need to touch a new high before the current rally will qualify as a new bull market.

🗣 What you're saying: A lot, and it sounds bullish.

• "It shouldn’t matter, because we know it will eventually break through that line as it has so many times before, and we should position our long-term portfolios accordingly," wrote reader Calvin McKenney, from Minneapolis, Minn.
• "After Jan 1 2024 the market will head into new, higher territory. But not before," wrote Nick Conaty, of Austin, Texas. "Inventory gluts across the board are still being worked through, possibly through the holiday season."
• "The market will finish above a new high by the end of the year," wrote reader Taylor Martinez, of Tampa. "My rationale is that the rental rates for new leases will continue to abate which is a major leading inflation indicator, and once the inflation handle reads 2%, everything will begin to rip roar higher."
• "I don't look for extravagantly or exuberantly market new highs, but another 6% would be about right by year's end," wrote Richard Seaton Holt, of Melbourne, Fla.
• "I'm pretty sure that the markets won't hit new highs until later this year, after budget appropriations are finalized and we get through another government shutdown threat," wrote Lynne Crehan, from Martinsburg, Pa.
• "I can make the market reach a new high any time I want just by liquidating my portfolio," said Donald Loft, of Atlanta.
• "Doesn’t matter. Put money in an index fund every month and don’t listen to the noise," wrote Scott Kohan, of Austin, Texas.