For three years, the U.S. economy has been buffeted by rapid inflation, high interest rates and political instability at home and abroad. Yet it has proved surprisingly resilient, supported by the sturdy pillars of robust consumer spending, a rising stock market, and healthy balance sheets for households and businesses alike.
But one by one, those pillars have begun to crack under the weight of tariffs and uncertainty. The all-out global trade war that President Trump declared on Wednesday could be enough to shatter what had arguably been the economy’s final source of support, the strong job market.
“The strength of the consumer is coming down to the jobs market,” said Sarah House, an economist at Wells Fargo. “And it’s increasingly perilous.”
The sweeping tariffs that Mr. Trump announced on Wednesday, and the duties that U.S. trading partners quickly imposed in retaliation, sent stock indexes around the world tumbling on Thursday. The effects won’t be limited to the financial markets: Economists say tariffs will raise prices for consumers and businesses, which will lead employers to pull back on hiring and, if the tariffs remain in place long enough, lay off workers.
“If the economy isn’t growing as fast, or it isn’t growing at all, you don’t need as many workers,” Ms. House said.
Economists will get their latest glimpse of the job situation on Friday, when the Bureau of Labor Statistics will release March figures on hiring and unemployment.
Even before the latest salvo on trade, the uncertainty surrounding the administration’s policies had led many businesses to delay hiring plans and put off expansions or other investments. A survey of manufacturers released by the Federal Reserve Bank of Dallas on Monday showed that forecasts for capital expenditures in six months’ time dropped sharply in March. The outlook for employment also soured as businesses turned downbeat about the overall economic backdrop.
“Trump, tariffs, massive uncertainty — how can you do business planning with all of this uncertainty and the daily changes in direction made by the Trump administration?” one electronics manufacturing executive said in a survey response.
The labor market has proved remarkably resilient in recent years, defying predictions from many forecasters that the Federal Reserve’s efforts to rein in inflation would lead to rising unemployment. That has helped support the broader economy: Even as Americans’ savings have waned and their confidence has faded, most have held on to their jobs, allowing them to keep spending.
But even before Mr. Trump took office, there were hints that the labor market was more fragile than the low unemployment rate and steady pace of job growth suggested. Companies weren’t cutting jobs, but they weren’t adding many, either. Workers had grown reluctant to change employers, and those who were looking for jobs were taking longer to find them. That caution has only intensified during the chaotic early months of Mr. Trump’s presidency.
“I think there is some shakiness starting to show,” said Allison Shrivastava, an economist at the job site Indeed. “You can almost think of the labor market as a rock in the ocean getting battered and getting weathered by all the other things going on in the economy.”
Any pullback in hiring is likely to show up first in industries that are directly hurt by tariffs, like retailers that sell imported goods and manufacturers that rely on imported materials to make their products. That may already be happening: A survey of chief financial officers released last week showed that a quarter of the companies are scaling back their hiring and capital spending plans for 2025 because of tariffs.
But even businesses that are seemingly far removed from the trade war could feel the effects if higher prices lead consumers to pull back their spending.
At Woodhouse Spa, a Colorado-based chain of 88 luxury wellness centers, business has grown rapidly in recent years, as a rising stock market and strong economic growth have lifted the fortunes of the affluent households that make up its customer base. So far, there is little sign of that changing, said Ben Jones, who runs Woodhouse’s parent company, Radiance Holdings.
But with stock prices falling and surveys showing that consumers are increasingly wary, Mr. Jones is watching his sales figures closely for any signs that business is taking a hit. And tariffs will further drive up already sky-high construction costs, making it harder to expand.
As a result, when Radiance’s executives made hiring plans for this year, they took a cautious approach. Positions they had hoped to add, like a site-selection specialist to help identify potential new locations, were put on hold.
“We openly discussed, ‘Do we really need these positions?’” Mr. Jones said. “In the face of this uncertainty, let’s make sure that we’re only hiring exactly what we need this year.”
Radiance isn’t planning on cutting any jobs. But that could change if revenues start to fall behind the company’s projections.
“We have a budget to hit,” Mr. Jones said. “We obviously watch revenue very closely and need to make the hard decisions if we see we’re going to start missing the budget for the year.”
Layoffs have crept up in recent months, particularly among small businesses, which have less of a cushion against higher costs. But companies have generally responded to uncertainty by pausing hiring, not cutting jobs — in part because memories of the post-pandemic labor shortages remain fresh among hiring managers.
“I think there’s still a little bit of scarring from that labor market that leaves employers really wanting to hold on to their workers,” said Amy Glaser, senior vice president at the staffing firm Adecco.
That could change if tariffs begin raising companies’ costs or hurting sales. Employers may initially resist layoffs in the hope that the trade war proves short-lived. But if tariffs remain in place, job cuts are inevitable, said Noah Yosif, chief economist for the American Staffing Association.
“When we’re going to start to see more of an acceleration in layoffs and this freeze within the labor market is if employers en masse begin to lose hope in the fact that tariffs are not going to be short-term tools designed to secure better trade deals,” he said.
High and potentially rising inflation further complicates the hiring picture for companies. When supply chains gummed up during the pandemic and costs soared, businesses were able to pass along much of those added expenses to their customers. They may be much more constrained this time around, which would force them to absorb the costs themselves.
“I’d be more worried that consumers just say ‘no’ and it comes out of corporate profits,” said Donald Rissmiller, chief economist at Strategas, a research firm. That would be followed by layoffs and cuts in capital spending and travel, he said, adding, “I’m worried about that channel.”
After Mr. Trump’s announcement on Wednesday, Mr. Rissmiller said he expected the unemployment rate to rise to 5 percent, from 4.1 percent in February. He also raised his U.S. recession odds for this year to 45 percent.
Most forecasters expect the March employment report to show a modest slowdown in hiring, punctuated by job losses among federal workers. But the data was collected in mid-March, an eternity ago given subsequent developments.
“I never thought that a month behind would be seen as ancient history, but it does seem that way now,” Ms. Shrivastava said.
