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Friday’s jobs numbers will provide the latest glimpse of how a high-tariff regime and the uncertainty surrounding trade policies will influence unemployment figures. But like several other key indicators that look backward in time to help us steer through the present, it’s their future datasets that will reveal a fuller picture.
For the labor market, those numbers may not arrive until July or August — a time by which many investors hope a new tariff regime will already be established.
A curious hallmark of this stutter-step trade policy shift, with its dealmaking and delays, is that the effects of a “Liberation Day” initiated this spring won’t be meaningfully felt until deep into summer, or perhaps longer, no matter how Friday’s data stacks up.
“While we think it is still too soon for the jobs report to capture the adverse impact of trade policy — that impact will show up in the employment reports for July and August — the overall cooling trend suggests that employment and wage growth will be insufficient to completely absorb that impact,” wrote RSM chief economist Joe Brusuelas in a note on Thursday.
Resilience has been a keyword of the US economy in the COVID era. And it has applied just as well to the early days of the trade conflict, reflecting a trend of layoffs remaining low and business activity holding steady. But as my colleague Josh Schafer reported, data points on hiring and manufacturing this week have shown signs of slowing as tariffs make their mark.
Analysts aren’t forecasting a collapse in the labor market. But the concepts of hesitancy and paralysis are gaining traction as employers realize a reasonable strategy during this moment of uncertainty is to do nothing. And lest we forget, the labor market had been cooling prior to the trade war after quarters of restrictive policy as the Fed’s higher-for-longer interest rates curbed inflation.
But a prolonged hiring pause can have repercussions too.
“We are approaching an inflection point, where the concerns of stagflation can seep into the greater market narrative,” said Chris Zaccarelli, chief investment officer at Northlight Asset Management. “We are seeing dropping productivity and slower growth, while also seeing signs of higher (or sticky) inflation,” he said in a note on Thursday.
Waiting to see how tariff policy shakes out can itself produce negative signals. But what might seem like an unspoken, collective hiring freeze could just be the prudence of managers biding their time, and as the job openings showed us, companies are taking advantage of the minimal cost of merely being ready to hire.
The flip side is that a state of calm in the data could be masking the pain to come, functioning like a convenient illusion. Either way, the market — and the Fed — are once again left to continue their wait for more data.
Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy. Follow Hamza on X @hshaban.
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