The latest message from the data on the U.S. economy is simple: So far, so good, until further notice.
The labor market remained in a healthy state of balance as America entered a global trade war in April. U.S. employers added 177,000 jobs last month, the Labor Department reported on Friday. And the unemployment rate was unchanged at 4.2 percent.
Both numbers were based on surveys taken in the immediate wake of the Trump administration’s move in early April to institute the highest level of tariffs on imports since the 1930s, although some of those levies have been paused for 90 days. The payroll gains extended the streak of U.S. job growth to 52 months.
Data released earlier this week showed that the U.S. economy contracted in the first three months of the year. But that was largely a result of a surge in imports as firms and households bought goods to try to get ahead of the tariffs. The trajectory of trade and consumer spending going forward remains unclear.
The picture of a steady job market, even if slightly backward looking, was reassuring for investors, who have been parsing through economic data for signs of a trade-induced deterioration. The S&P 500 rallied after the release and has now erased all its losses from early April.
“What we can take away from today is that the U.S. economy has entered the trade war on strong footing,” said Rebecca Patterson, a senior fellow at the Council on Foreign Relations and former chief investment strategist at Bridgewater Associates. “But the longer tariffs are in place and the higher the tariff levels are, the greater the risk that this optimism quickly fates.”
The vast majority of analysts say the eventual effect of President Trump’s high tariffs on the labor market will be fully felt only in the weeks and months to come. Still, the early impact is reverberating through currency markets, global freight patterns and corporate business plans.
Ocean container bookings from China to the United States have dropped 60 percent since early April. Several large, publicly traded companies — General Motors, Delta Air Lines and UPS, among them — have pulled their guidance for the rest of the year, something that had not happened at this scale since the pandemic shock of March 2020.
Many businesses reliant on shipments from China have halted inbound orders. Import taxes on Chinese goods, which are set at a minimum of 145 percent, are so high that in many cases the import taxes are effectively a trade embargo.
The U.S. economy is more oriented than ever around services, which constitute about 70 percent of U.S. commercial activity. Yet goods purchases still make up a major chunk of household spending, and more than 40 percent of U.S. manufacturers rely on imported parts or finished goods.
Consumer sentiment has plunged in the past few months. And forecasters at major banks have dialed up the risk of recession and higher inflation this year.
The early rollout of other Trump administration policies, including the slashing of the federal civil service and of immigration inflows, will also be felt throughout the rest of the year. Federal government employment declined by 9,000 in April and is down by 26,000 since January — not enough to pull down overall employment. But once many of these workers run out of severance, they may find themselves as job seekers in a much weaker job market.
Lower immigration will reduce labor supply and competition for jobs, which may put some downward pressure on the unemployment rate. But it may also limit job growth, especially in industries that continue to report labor shortages like care work and construction work.
Average hourly earnings growth for U.S. workers, which is up 3.8 percent over the past year, has kept up a solid pace since overtaking inflation in 2023. But a broad range of households continue to feel squeezed by the increased cost of living in recent years.
Tariffs, if kept in place, may worsen the strain.
In response to investor expectations of a trade-induced slowdown, the global price of oil has fallen. That, in turn, has led to cheaper gasoline. But several calculations by nonpartisan institutions indicate that Mr. Trump’s tariffs — which are essentially taxes on domestic importers — could costs American families thousands of dollars annually.
Adidas said this week that steeper tariffs would eventually lead to higher-priced sneakers and sportswear for U.S. customers. Executives at Procter & Gamble, which makes products like Bounty paper towels and Tide detergent, said last week that the company would most likely increase prices for some products to deal with the effects of higher tariffs. And officials at Hasbro recently said the toymaker would “have to raise prices.”
The Trump administration’s elimination of a loophole that allowed items worth $800 or less from China to enter the United States without import fees may lead to the most immediately visible impact for customers doing summer shopping online.
There are fears that inflation, which is currently a tame 2.4 percent on a yearly basis, may rise again because of the trade war, even as growth slows. That could put the Federal Reserve, which is responsible for preserving employment and managing inflation, in a tricky position. If the labor market slows and prices rise, the Fed may find its two goals in tension.
These fears and gyrations are a major shift from the state of play in February, when much of Wall Street and top business leaders in corporate America expected interest rate cuts, tax cuts, deregulation and more precisely calculated tariffs to extend the bull market that America has been experiencing in the past three years.
For businesses looking to adapt to whatever this new unfolding reality may bring, “forecasting the degree of deterioration requires both humility and agility,” said Daleep Singh, head of global macroeconomic research at PIMCO and a deputy national security adviser during the Biden administration. “The list of uncertainties is long and growing.”
At the moment, the business community is hanging on every word from top Trump officials, who have been openly hinting that the White House is nearing a “framework” for new trade deals with different nations, though they have not yet announced any actual deals.
Most executives expect that, as trade negotiations go on, Mr. Trump “will continue to pivot and declare victories in order to truncate the worst outcomes,” Mr. Singh said. “But the reversals may be too late.”
In the same way that a pullback on trade has lagged effects, the potential resuscitation of more normal relations may also take several months to be felt — with a major slowdown of investment and hiring by U.S. businesses in the meantime.
And there is little guarantee that America will preserve or improve upon previous trade arrangements. European, Asian and Latin American allies of the United States are already in talks to create trade lines less subject to the volatility of American hegemony.
Nevertheless, the U.S. dollar remains the most dominant currency in world trade, and the spending power of American consumers is still unmatched. And those starting points do offer the Trump administration substantial buffers as officials jockey to reshape the global order.
U.S. company balance sheets are healthy overall. And U.S. households are also in historically solid shape overall, despite disparities. Two-thirds of U.S. households are homeowners, and most of them still have relatively low-rate, fixed mortgages. Credit card companies, such as Visa, are reporting that despite the negative national mood, consumers continue to spend in seemingly confident fashion as summer beckons.
That has left some analysts skeptical that the economy is anywhere near recession.
“If all the China tariffs remain in place, we may start hearing signs of stress in some impacted pockets of the economy by Memorial Day, but even that likely seems too soon,” said Peter Williams, managing director of macroeconomic research at 22V Research, an investment strategy and quantitative analysis firm.
The threat, of course, is that those pockets of weakness may metastasize.
Alan Bass and his family run a trade-exposed business, Stevens International, a wholesale distributor based in Magnolia, N.J., serving over 1,000 hobby and game shops.
“What we’re doing is we’re bringing things in from around the world that are not readily available in the U.S., and then offering them to retailers and consumers,” Mr. Bass, 35, said.
They carry more than 40,000 items — toys, paints, arts and crafts supplies and niche plastic model kits — and most of their 300 or so suppliers are abroad, many of them in China.
The sky-high tariffs are such a shock to their business that they have halted all orders from China and paused hiring. Mr. Bass plans on placing recent orders, currently out at sea, in “bonded” warehouses — places where importers pay a fee to have their shipped goods temporarily stored onshore without having to pay customs duties.
His broader plan, and hope, is that the trade war blows over by the end of summer.
“A good chunk of who we buy from are just foreign companies whose products are not available here,” Mr. Bass said. “It’s not someone who has outsourced their work. It’s just someone that’s not an American company.”
Madeleine Ngo contributed reporting.
