Labor Market Stays Strong - But Signs Of Weakness Are Emerging

Forbes

02-05-2025

Business is still hiring but unevenly across sectors
The new jobs report for April 2025 from the Bureau of Labor Statistics is stronger than expected, even though signs of weakness are emerging which will likely grow in the coming months.
Overall payroll growth was 177,000, which exceeds economist expectations (of 130-140,000). Though estimates of growth for last month were revised downward (from 228,000 to 185,000), the last two months have shown a quite robust job market.
But, looking more closely at specific industries, signs of a coming slowdown are emerging, as are indicators that Trump administration actions are starting to have negative effects.
Federal government employment dropped last month by 9,000, and is down 26,000 over the past 3 months. This is just a small fraction of the numbers of federal employees whose jobs have been eliminated by DOGE; but while federal employees receive severance pay or paid leave, they are still considered employed. These cuts will no doubt appear sronger in coming months.
Retail sales were down by 1800, and leisure and hospitality jobs grew by a moderate 24,000 - less than in previous months. These likely reflect weakening sales and dropping consumer confidence.
Professional services grew by just 17,000, and several categories - like scientific research and development or scientific and technical consulting - contracted, likely reflecting DOGE cuts to research grants and pay for federal contractors that had been previously awarded. Jobs in private education, where private college and university employment are measured, rose by just 12,000.
On the household side, unemployment remained at 4.2 percent, a modest rise from a year ago (when it was 3.9). Labor force participation grew a bit (to 62.6 percent), but it remains on a downward trend as Baby Boomers continue to retire.
So the overall jobs report is mixed - stronger overall than expected, but with key signs of weakness in particular industry payrolls along with flat household unemployment which has been rising in other months.
And these should be interpreted in light of other signs of emerging weakness during the past week. First, GDP has dropped by .3 percent in the first quarter of 2025. While this was mostly driven by a surge in imports (before tariffs are imposed), they also reflect weakness in consumer and government spending. Second, the job vacancy rate announced on Wednesday was 4.3 percent - considerably down from a year ago (when it was at 4.9 percent). Third, a notable increase in new applications for Unemployment Insurance has appeared in the most recent data.
It is impossible to know what the job market in the coming months will look like. The effects of tariffs on consumer prices, especially on imports from China, will begin to emerge, and could further reduce wholesale and retail trade and spending on services - as will weakening consumer confidence. More cuts in federal employment will no doubt emerge. Weaker business confidence will probably reduce investment activity. And all of the above will likely have indirect spillover effects on spending and jobs in other sectors.
But nothing is certain. Perhaps President Trump will pull back more quickly from his tariffs than he has done so far; or perhaps Congress will pass a large tax cut - which would stimulate some spending in the economy while greatly increasing federal debt. But, with inflation averaging 3.6 percent in the first quarter of 2025 (according to the GDP deflator for personal consumption expenditures), the Fed is unlikely to help with lower interest rates anytime soon.
The only thing we can count on for sure in the coming months is more federally-induced chaos and uncertainty, which are not particularly good for an economy or a job market.