Economist Corner

Key Takeaways

Employment in the U.S. increased by 456,000 in the first quarter of 2025 while the unemployment rate edged up to 4.2%.
Wall Street Journal economists increased the odds of a recession within the next 12 months from 22% in January to 45% in April.
The administration's initial actions to reduce the size of the federal workforce hampered employment growth and resulted in the loss of 12,000 jobs during the first quarter.
The retail sector appears to be reacting swiftly to the current tariff environment, with retail trade experiencing a 12.5% drop in job openings during the first quarter.

Key Employment Insights

Payroll on the decline
October’s largest payroll gains were in the Manufacturing and Professional & Business Services sectors. Transportation and Information Technology sectors saw the biggest decline.
Federal job cuts hampered employment growth in Q1
The recent job cuts to the federal workforce has negatively impacted the country's overall employment growth in Q1. Based on recent data from the BLS, these cuts will continue to have a negative ripple affect throughout the rest of the year.
100k jobs lost due to recent natural disasters
Nearly 100,000 individuals lost their jobs in Q1 due to the recent wildfires, hurricanes, and flash flood that have impacted most of the country.

Looking Ahead in Q2

Tariffs will continue to impact labor market
Based on preliminary data from the BLS, the ongoing tariff war could result in the loss of nearly 100,000 jobs across the US in Q2 alone. As businesses continue to struggle with prices, we could expect an increase in layoffs to compensate for the higher overhead costs.
New legislation is expected to boost US employment
New legislation proposed by the Trump administration to abolish taxes could result in a significant boost to the U.S. labor market, potentially adding one million jobs across the country.
Cutting interest rates could lead to recession
If the Federal Reserve fails to achieve a soft landing in the coming months, economists predict it might send the country into a recession and result in the loss of thousands of jobs.

Key Labor Market Insights

Federal job cuts slowed job growth in Q1
Federal job cuts hampered employment growth in Q1 but did not detract from strong overall growth. Based on recent data from the BLS, these cuts will continue to have a negative ripple effect throughout the rest of the year.
U-3 unemployment rate stays steady; U-6 rate rises
The U-3 unemployment rate has remained somewhat stable over the past year, while the U-6 unemployment rate rose steeply in the first quarter from 7.5% to 7.9%. When accompanied by a steady labor force participation rate, this is a worrying trend that signifies more individuals were unable to find jobs with the number of work hours that they wanted.
Real private sector wages improved in Q1
Real private-sector wages have been improving since the inflation rate peaked in mid-2022. That may start to erode before we see job losses if inflation is reignited by tariff policy.

Looking Ahead In Q2

Ever-changing policies clouds economic projections
The hazy policy landscape adds an extra degree of difficulty in projecting how the economy will perform over the next several months. Market watchers will be looking for everything from tariffs to interest rates to tax reform to clarify the direction of the economy.
Political uncertainty may result in mild job loss in Q2
Without knowing how these political developments will unfold, the economic data is pointing towards a mild job loss of 55,000 in the 2nd quarter of 2025 before rebounding by 484,000 in the 3rd quarter.
Odds of a recession nearly doubled in April 2025
Economists in the Wall Street Journal Survey have revised their outlook downwards, forecasting U.S. GDP to expand by only 0.8% in the fourth quarter 2025 from a year earlier and increasing the odds of a recession within the next 12 months from 22% in January to 45% in April.

Breaking it Down Further

The administration's initial actions to reduce the size of the federal workforce resulted in the loss of 12,000 jobs during the first quarter. While it is uncertain whether this pace of cuts will continue in the foreseeable future, there is potential for more employees to accept buyout agreements. Additionally, the administration has suggested the possibility of closing down operations of the Department of Education that are not explicitly mandated by federal law.

However, other sectors of the economy may be able to absorb these laid-off workers. Many public sector employees, particularly those in office and professional roles such as database managers and statisticians, may find suitable positions in the private sector. Moreover, state and local governments might take on some of the policies and administrative responsibilities that the federal government is moving away from. For example, state environmental agencies may hire laid-off workers from the EPA to fill their expanded roles.

The retail sector appears to be reacting swiftly to the current tariff environment, with retail trade experiencing a 12.5% drop (approximately 80,000) in job openings during the first quarter. It is atypical for price increases resulting from supply disruptions to affect retail job openings before impacting manufacturing jobs; however, this scenario is plausible. Typically, price increases from suppliers would constrict the activities of downstream manufacturers, leading them to cut jobs first, and then eventually work its way to the retail sector. However, the rollout of tariffs has garnered a lot of attention in the financial markets and the media.

The consequences of tariffs and the surrounding coverage have dampened consumer sentiment, as evidenced by the University of Michigan Consumer Sentiment Index, which plunged to 50.8 in April—just above its all-time low of 50.0. It seems that retailers have recognized consumer anxiety over tariffs and are taking preemptive actions in the labor market.

In the coming months, the developments around tariff policies and negotiations are likely to dominate economic discussions. The way businesses and industries react to these announcements through their job postings may offer early indicators of whether their strategies will prevent an economic downturn, and if so, how severe it may be. After the next quarter, we may have more concrete answers.

How have the federal job cuts impacted the labor market?

We will begin in this chapter by dealing with some general quantum mechanical ideas. Some of the statements will be quite precise, others only partially precise. It will be hard to tell you as we go along which is which, but by the time you have finished the rest of the book, you will understand in looking back which parts hold up and which parts were only explained roughly.

What are the implications of the tariff war from a labor perspective?

Will getting rid of taxes really jump start the labor market?

How optimistic are economists about the labor market in the coming months?

Key Unemployment Insights

Steady as it goes
Throughout Q1 2025, The unemployment rate has consistently remained low at 4%, indicating a stable job market, boosting economic growth and consumer confidence.
Shifting Job Vacancy Ratios
The ratio of vacant jobs to jobless workers has decreased, indicating a shift in the labor market's dynamics. While still relatively tight, the market is becoming less intensely competitive for workers than it was previously
Changes in Voluntary Quits
The rate of voluntary quits has decreased, suggesting that workers are becoming less inclined to leave their current jobs. This could indicate increased caution among workers due to economic uncertainty, or increased job satisfaction.

Looking Ahead In Q2

Tariffs will continue to impact labor market
While currently low, we anticipate the unemployment rate will gradually increase in Q2. However, this increase is expected to remain within a relatively narrow and historically healthy range.
Federal Reserve Actions
If the Fed maintains or increases interest rates to combat inflation, it could lead to a slowdown in economic growth and potentially higher unemployment. Conversely, if the Fed begins to lower rates, it could stimulate growth and keep unemployment lower.
The Rise of Contract and Temporary Work
An increase in contract and temporary hiring suggests that businesses may be adopting a more flexible approach to staffing, possibly due to economic uncertainty. This also shows that the "quality" of jobs, may be changing.

Breaking it down Further

Despite mounting economic and geopolitical uncertainty, the national labor market notched another month of decent job gains and low unemployment. But there’s also potential trouble brewing beneath the surface of this report. Inflation remains stubbornly high and may yet climb higher. A rapid reversal in federal government hiring is showing signs of trickling down into state and local government hiring. And it remains uncomfortably difficult for unemployed people who want a job to quickly find one.

All eyes will likely be on federal employment, which officially fell by 10,000 in February. But the total reduction in federal employment was likely even larger last month, given the timing of data collection that happened towards the beginning of last month. Federal employment (minus post office workers) added an average of 6,400 jobs per month between July 2022 and March 2024, slowing to roughly 3,000/month towards the end of last year and then falling off a cliff last month. This federal slowdown is also showing signs of trickling down into state and local government hiring. Local government employment gains have fallen from an average of 36,000 jobs added per month between December 2023 and February 2024, to 18,000 in the past three months.

Going forward, the full impacts of all the new policies, proposals, and abrupt reversals that are the hallmarks of this administration will begin to shape the official statistics — good, bad, or indifferent. The market’s ability to maintain its “business as usual” momentum will be tested and the anticipated soft economic landing continues to hang in the balance.

The unemployment rate measures the percentage of the labor force that is currently without a job. The national unemployment rate has remained steady throughout 2023 and now into 2024, fluctuating between 3.7% and 4.1%.

U-3 unemployment rate is the most commonly reported rate in the United States, representing the number of unemployed people actively seeking a job. The U-6 rate covers discouraged, underemployed, and unemployed workers in the country.

How will the recent natural disasters affect the unemployment rate?

What is the current unemployment duration?

Will the federal job cuts impact people claiming unemployment benefits?

How optimistic are economists about the labor market in the coming months?

Employment

In Brief: October’s largest payroll losses were in the Manufacturing and Professional & Business Services sectors. Professional & Business Services fully recovered its loss in November (+3,000 over the last two months), but Manufacturing will have a longer path to regaining its jobs (-26,000 over the same period).
The Big Picture: Private Education & Health Services and the Public sectors in November maintained the high growth we have seen over the last year and look to remain the primary job generators in the labor market heading into next year.
Diving in: Despite mounting economic and geopolitical uncertainty, the national labor market notched another month of decent job gains and low unemployment. But there’s also potential trouble brewing beneath the surface of this report. Inflation remains stubbornly high and may yet climb higher. A rapid reversal in federal government hiring is showing signs of trickling down into state and local government hiring. And it remains uncomfortably difficult for unemployed people who want a job to quickly find one.

All eyes will likely be on federal employment, which officially fell by 10,000 in February. But the total reduction in federal employment was likely even larger last month, given the timing of data collection that happened towards the beginning of last month. Federal employment (minus post office workers) added an average of 6,400 jobs per month between July 2022 and March 2024, slowing to roughly 3,000/month towards the end of last year and then falling off a cliff last month. This federal slowdown is also showing signs of trickling down into state and local government hiring. Local government employment gains have fallen from an average of 36,000 jobs added per month between December 2023 and February 2024, to 18,000 in the past three months.

Going forward, the full impacts of all the new policies, proposals, and abrupt reversals that are the hallmarks of this administration will begin to shape the official statistics — good, bad, or indifferent. The market’s ability to maintain its “business as usual” momentum will be tested and the anticipated soft economic landing continues to hang in the balance.

Unemployment

In Brief:
What Does This Mean?: An increasing unemployment rate (both U-3 & U-6) with a declining labor force participation rate is a worrying combination. It indicates that some who were previously looking for work have become discouraged and stopped, but even those who have remained in the labor force are finding it more difficult to be employed. This may be another symptom of the hurricanes as those who previously declared temporary unemployment later permanently left their jobs, and some of them may not have begun searching for new jobs yet.

Key Employment Insights

Impact of California's Wildfires
California lost 54,000 jobs in Q1 compared to its 2-year average of gaining 26,000 jobs per quarter. Much of this was likely caused by the devastating wildfires in Southern California in January that the state continues to recover from.
Federal cuts cause sharp decline in jobs in D.C.
The District of Colombia had the most dramatic job loss relative to its usual pace of job creation, declining by 2,500 instead of the typical increase of 640. This drop is largely due to cuts in the federal workforce. Similarly, Virginia and Maryland, which have a large number of federal employees, finished the quarter well below their recent average.
Employment growth in Oregon & Ohio surge
Oregon and Ohio experienced the highest job growth in Q1 and are the only two states to create more than twice the number of jobs they averaged over the past two years.

What We're Forecasting

Tariffs will continue to impact labor market
Based on preliminary data from the BLS, the ongoing tariff war could result in the loss of nearly 100,000 jobs across the US in Q2 alone. As businesses continue to struggle with prices, we could expect an increase in layoffs to compensate for the higher overhead costs.
New legislation is expected to boost US employment
New legislation proposed by the Trump administration to abolish taxes could result in a significant boost to the U.S. labor market, potentially adding one million jobs across the country.
Cutting interest rates could lead to recession
If the Federal Reserve fails to achieve a soft landing in the coming months, economists predict it might send the country into a recession and result in the loss of thousands of jobs.

Key Industry Insights

Payroll on the decline
October’s largest payroll losses were in the Manufacturing and Professional & Business Services sectors. [Example Headline & Text]
Federal cuts leads to sharp decline in jobs
The administration's initial actions to reduce the size of the federal workforce resulted in the loss of 12,000 jobs during the first quarter. [Example Headline & Text]
The Big Picture: Private Education & Health Services
and the Public sectors in Q1 2025 maintained the high growth we have seen over the last year and look to remain the primary job generators in the labor market heading into next year. [Example Headline & Text]

What We're Forecasting

Tariffs will continue to impact labor market
The uncertainty of the current tariff landscape is expected to cause countless industries to make significant job cuts across the board. [Example Headline & Text]
New legislation is expected to boost US employment
The government sector is expected to fully recovered its loss in Q1 2025, (+3,000 over the last two months), but Manufacturing will have a longer path to regaining its jobs (-26,000 over the same period). [Example Headline & Text]
Edu. job cuts could cause a recession
The decline of Private Education & Health Services and the Public sectors in Q1 2025, cause result in a recession, according to the Wall Street Journal economists [Example Headline & Text]

Stock Up:

Mining and Logging Sector: In the first quarter of 2025, we've seen the mining and logging sector surge, adding one billion jobs. Specifically, the oil & gas extraction (+300,000) and the coal mining (+200,000) industries saw the largest increase in job openings since the new administration took office. This is the result of the administration large investment to maximize the use of the country's domestic resources, such as coal and oil. We can expect to see a steady increase in the coming months as well. [Example Headline & Text]
Manufacturing: The manufacturing sector (+600,000) significantly increased in Q1 2025 due to the recent rise in companies continueing to invest in manufacturing their goods in the US. The semiconductor and electronic components (+500,000) industry saw the largest increase in jobs due to the high tariffs placed on China. Wood products (+35,000) also saw a substantial rise as a result of recent research that shows wooden products are vastly superiors to metal ones. [Example Headline & Text]

Leisure & Hospitality: Employment in Leisure & Hospitality (+70,000) increased sharply in the first quarter. Food services and drinking places (restaurants and bars) continues its run of strong hiring, making up 28,900 jobs created in Leisure & Hospitality for Q1. This is due to XYZ. [Example Headline & Text]

Stock Down:

Government Sector: The administration's initial actions to reduce the size of the federal workforce resulted in the loss of 12,000 jobs during the first quarter. While it is uncertain whether this pace of cuts will continue in the foreseeable future, there is potential for more employees to accept buyout agreements. Additionally, the administration has suggested the possibility of closing down operations of the Department of Education that are not explicitly mandated by federal law. [Can you add in more data/detail about the job losses so it's different from Labor Market Overview Section]
The Retail Sector: The retail sector appears to be reacting swiftly to the current tariff environment, with retail trade experiencing a 12.5% drop (approximately 80,000) in job openings during the first quarter. It is atypical for price increases resulting from supply disruptions to affect retail job openings before impacting manufacturing jobs; however, this scenario is plausible. [Can you add in more data/detail about the job losses so it's different from Labor Market Overview Section]

Construction Sector: Similar to the retail sector, construction saw a sharp decline in job openings (-800,000) due to the current tariff environment. As the cost of materials continues to grow, we can expect construction to slow down in the U.S., which could result in the loss of even more jobs. [Example Headline & Text]

Key Industry Insights

Federal cuts leads to decline in jobs
The administration's recent initiatives aimed at downsizing the federal workforce resulted in a significant loss of approximately 12,000 jobs during the first quarter. This reduction has raised concerns about the potential for continued job cuts in the coming months. As a response to the shifting employment landscape, many federal employees may begin to explore buyout agreements. This trend could further impact the overall size and effectiveness of the workforce, leaving many to speculate on the long-term consequences for federal services and operations.
Trade, Transportation, & Utilities sector outpaces expectations
The Trade, Transportation, & Utilities sector produced impressive job increases during the first quarter, expanding by 123,000 and far outpacing the 25,000 quarterly average over the previous two years. This is perhaps the indirect results of tariff uncertainty leading businesses to hire employees to help them revamp their supply chains.
Retail sector reacts swiftly to rise in tariffs
The retail sector is rapidly adjusting to the challenges posed by the current tariff environment. This shift has led to a significant 12.5% decrease in job openings, equating to approximately 80,000 positions, during the first quarter alone. This downturn reflects broader economic uncertainties and heightened operational costs driven by the changing import duties, prompting many retailers to reassess their hiring strategies and workforce needs.