Does this imply LLMs will not work well on novel reasoning problems?

Yep that's the implication. Anecdotally this is obvious to me. I'm using LLMs to write Java and C++, and then can churn out generic plumbing with no issues, but novel code for a novel implementation of a novel idea, they have no idea what they're doing.

I'm getting good productivity gains, but it requires a lot of hand holding because AI does not know what it's doing.

On far less novel problems I get far better results.

ARC-AGI is already testing that.