It all comes down to the job market.
President Donald Trump’s drastic policy moves, and the twists and turns that have come alongside them, have made economic forecasting a squirrely endeavor.
The sheer uncertainty of what’s to come has put markets on the fritz and sent soft data (like consumer sentiment surveys) sounding alarms. Now, the hard data (tried-and-true economic metrics that are lagged for good reason) is starting to reflect some of the disarray.
A tumultuous tariff program and trade war have sent recession odds higher.
“Let’s not fool ourselves, things are going to get worse later this year, probably later in the summer,” Robert Frick, corporate economist at Navy Federal Credit Union, told CNN in an interview. “But for now, we really need to cross our fingers and hope that incomes and jobs hold up, because those are the things that will insulate us.”
The engine of the US economy is the American consumer, whose spending accounts for more than two-thirds of economic activity. And the lifeblood of consumer spending comes from one critical source: the US labor market.
And as it stands now, and as it likely stood in April, that fuel source hasn’t run dry — but it very well could be starting to crack under the pressure.
“The economy appears strong in the data … job growth is continuing, the unemployment rate is at a fine level; there are no warning signs there, but I think what the data doesn’t show is that the risks have increased,” Elizabeth Renter, senior economist at NerdWallet, told CNN in an interview this week. “There’s a whole lot going on, and there are a lot more and greater risks to the labor market and to the broader economy now than there were, say, three months ago.”
On Friday morning, the Bureau of Labor Statistics will release the jobs report for April, and it’s expected that the US economy added 135,000 jobs and that the unemployment rate stood pat at 4.2%, according to FactSet consensus economists' estimates.
Headwinds are growing stronger
If April’s estimates hold true, they’d mark a significant retreat from March, where preliminary estimates showed a stronger-than-anticipated net gain of 228,000 jobs. Economists expect that prior 228,000 estimate to be revised down come Friday now that more complete information is available (after all, March’s report included a downward revision of 48,000 jobs to January and February combined).
Through March, employment growth has averaged 152,000 jobs per month. That’s the slowest first-quarter growth since 2020 (when a massive 14 million jobs were lost that March) and, before the pandemic, since 2011, BLS data shows.
“The headwinds that we were looking at before the March report are still there and almost certainly stronger now,” Dean Baker, senior economist and co-founder of the Center for Economic Policy Research, wrote in a note issued earlier this week.
Tariffs were partly in place in March: It was the second month that initial tariffs on Chinese goods were in effect (20%); plus, the global 25% tariffs on steel and aluminum imports took effect March 12. Additionally, the Trump administration placed a hiring freeze on the federal workforce, slashed jobs across agencies and canceled massive amounts of grants and contracts.
“This has not led to any substantial uptick in unemployment claims, but surveys of both businesses and consumers have turned sharply negative in the last two months,” Baker noted. “It is hard to believe that this has not had some impact on hiring.”
Now businesses have to contend with plenty more unknowns.
In April, the tariff headwinds grew stronger as Trump ramped up duties on Chinese imports to 145%; placed a 10% baseline tariff on all imported goods; applied a 25% tariff on cars; and imposed — then delayed — additional, and varying “reciprocal” duties on dozens of countries.
Beyond tariffs, the federal spending cuts have continued, as have deportations and other anti-immigration actions.
The latest labor turnover data released earlier this week showed that some employers are retrenching. In March, job openings sank to their lowest level since September, a time when pre-election uncertainty helped to dampen hiring plans.
Some economists expect those “holding patterns” to become even more evident in the jobs data when it’s released Friday. Lydia Boussour, senior economist at EY-Parthenon, estimates that April’s job growth could be a paltry 65,000.
“Since the March jobs report, timely indicators such as initial jobless claims have not suggested a material surge in layoffs, but job cut announcements released by Challenger, Gray & Christmas indicate that layoffs are creeping higher as employers grow increasingly cautious about the outlook,” she wrote in a note to clients. “Business surveys also point to deteriorating labor market trends.”
The downside risks only grew in April, she added.
“The payroll survey for the jobs report was conducted the week after the April 2 reciprocal tariff announcement, when uncertainty and volatility were extremely high, which could have weighted on hiring decisions,” she wrote. “Moreover, April is a month when seasonal factors are substantially negative, especially in services industries.”
The seasonal adjustment calculations meant to counterbalance the spikes in springtime hiring could very well serve as a drag on Friday’s numbers if seasonal hiring this April was depressed due to uncertainty around tariffs, she added.
The DOGE effect
Though the ripple effects from tariffs and immigration-related activities could take longer to show up in the data, the federal workforce reductions already have started appearing. The sector posted job losses for two consecutive months, dropping 11,000 jobs in February and 4,000 jobs in March, BLS data shows.
More losses are expected, but could be spread over many months to come: While nearly 300,000 job cuts have been announced, not all federal workers were laid off immediately, so the impact to the labor market and unemployment is going to be a slow drip.
Job cuts by the government represented the largest chunk of layoffs so far this year, up 680% from the same period last year. Department of Government Efficiency-related cost-cutting led to a total of 281,452 layoffs, according to new data released Thursday by Challenger, Gray & Christmas.
For the month of April, US-based employers announced plans to cut 105,441 jobs, according to the Challenger report. That’s significantly higher than the 64,789 job cuts announced last April. However, a large chunk (40,000 jobs) of last month’s layoff count can be attributed to plans tied to two major employers: UPS and Intel.
Earlier this week, UPS said it plans to cut 20,000 jobs this year as part of a previously announced plan to increase automation and trim its Amazon business. Last week, Bloomberg reported that Intel was expected to cut 20,000 workers; however, the company has not announced specific details for potential upcoming layoffs.
Cutting through the noise, there is a clear trend of economic uncertainty weighing on businesses, noted Andrew Challenger, senior vice president for the outplacement and business coaching firm.
“Though the government cuts are front and center, we saw job cuts across sectors last month,” he said in a statement. “Generally, companies are citing the economy and new technology. Employers are slow to hire and limiting hiring plans as they wait and see what will happen with trade, supply chain, and consumer spending.”
Weekly jobless claims, which are considered a proxy for layoffs, remain near pre-pandemic levels and below historic averages —despite surging uncertainty and rising numbers of layoff announcements. The initial claims data, although highly volatile and subject to revision, has risen in importance as a potential indicator for how Trump’s sweeping actions — including mass layoffs of federal government workers — are filtering through the economy.
Last week, the number of first-time claims jumped to their highest level since late-February. There were 241,000 initial claims for unemployment insurance filed during the week ended April 26, according to Labor Department data released Thursday. That total is up 18,000 from the week before.
Thursday’s report also showed that people continue to stay unemployed for longer: The number of continuing claims, which are filed by Americans who have received at least a week or more of jobless benefits, climbed by 83,000 to 1.916 million, the highest level since November 2021.
Areas and metrics to watch in Friday’s report
Health care, state and local government, leisure and hospitality: These three sectors have been the leading drivers of overall job growth in recent years. Health care should continue to lead in job gains; however, the pace is expected to slow.
A downswing in state and local government hiring could be an indication of the negative ripple effects from federal spending reductions; at the same time, states and municipalities have sought out laid-off federal workers for empty roles.
“State and local government is the place where you often have safety net measures in place; so if we do go into a recession, seeing how well they’re holding up in terms of employment is also useful,” said Elise Gould, senior economist at the Economic Policy Institute.
In addition to the seasonal adjustment effects economist Boussour noted, slow job gains or losses in leisure and hospitality could also reflect a pullback in discretionary spending among rattled consumers.
Hours worked: If the average workweek dips lower, that could be a warning signal of what could come, Gould told CNN.
“Are people getting fewer hours? Are the shifts being reduced?” she said. “They’re not letting go workers, necessarily, but maybe they’re lowering [employees] hours of work.”
Wage growth: The annual rate of average hourly earnings dipped to 3.8% in March from 4% in February. With more workers uncertain about their future job prospects and the overall economy, they’re staying put — and less job-hopping means wage gains could continue to soften at a time when tariffs could cause prices to rise.
Wage gains have normalized after a post-pandemic spike; and while the stability is in line with what the Federal Reserve hopes to see (as inflation cools), the policy climate is far different — and far more unstable — than anticipated. New data released this week showed that US workers’ pay and benefits grew at their slowest pace in nearly four years during the first-quarter period when policy-related uncertainty started to weigh on hiring plans, according to new data released Wednesday.
Unemployment for Black workers: “The Trump administration has made clear that it intends to reverse all efforts at encouraging the hiring of Black workers and other minorities — not just in the federal government but in the private sector as well,” CEPR’s Baker noted. “This will almost certainly dim their employment prospects.”
In March, the employment to population ratio for Black workers dropped to 58.4%, the lowest since August 2022. Monthly data is highly volatile, especially for specific metrics such as this.
Construction and manufacturing: Construction has been a steady source of job growth; however, a dampening of demand coupled with rising input costs could cause that growth to falter.
The same could be true for manufacturers, who could feel the pinch from costlier goods imported from abroad, said Noah Yosif, chief economist at the American Staffing Agency.
