April Jobs Report Preview: Tariff Turbulence and Slowing Momentum Raise Stakes

Friday’s April jobs report arrives at a critical inflection point for markets, policymakers, and corporate America. After a week of weakening labor market indicators—JOLTS openings slipped, ADP private hiring softened, Challenger layoffs rose, initial jobless claims ticked up, and ISM surveys signaled contraction—investors are bracing for a softer employment print. The labor market, once the pillar of resilience in the face of tighter Fed policy, may now be showing the first clear signs of erosion. With President Trump’s tariffs beginning to ripple through corporate balance sheets and consumer sentiment, the April employment data will be scrutinized for evidence that those economic headwinds are translating into hiring hesitation.

Consensus Expectations and Labor Market Pacing

Economists surveyed by Dow Jones and The Wall Street Journal expect nonfarm payrolls to rise by 133,000 in April, a notable deceleration from March’s robust 228,000 gain. The unemployment rate is projected to remain steady at 4.2%, where it has hovered in a narrow band for nearly a year. Average hourly earnings are forecast to rise 0.3% month-over-month and 3.8% year-over-year, a continuation of the gradual deceleration in wage inflation seen over the past several months.

Given the recent deterioration in labor market signals, anything under six figures would likely rattle markets and heighten concerns about an economic slowdown, particularly in light of the Q1 GDP contraction. Moody’s Analytics chief economist Mark Zandi noted that a sub-100,000 print would “erase the optimism sparked by earlier strength” and “confirm that the labor market is losing altitude.”

Tariffs, Uncertainty, and Sectoral Exposure

At the heart of the anxiety is trade policy. Trump's early April "Liberation Day" tariffs—targeting steel, aluminum, and critical components—have added layers of uncertainty across multiple sectors. Manufacturing firms are starting to shed workers, as ISM’s employment index turned contractionary and respondents cited layoffs and hiring freezes. Economists at Pantheon Macroeconomics argue it would be “extraordinary” for employment to remain unscathed given the macro drag from tariffs, market volatility, and policy uncertainty.

While the full impact of the tariffs may not be fully visible in April’s report, the earliest signs are likely to emerge in transportation, warehousing, and import-sensitive manufacturing. Investors should watch the average workweek in these industries, as falling hours often precede job cuts. A softening in manufacturing payrolls, which added just 1,000 jobs in March, would reinforce this signal.

Sectors to Watch: Health Care, Construction, and Retail

Health care has remained a consistent engine of job growth, averaging over 50,000 additions per month. April is expected to follow suit, though looming federal funding concerns may temper hiring. Construction—a mainstay of strength during the recovery—may see hiring stall, particularly if developers anticipate reduced demand or tariff-induced input cost pressures. Retail and restaurant employment remain wild cards, with restaurants adding 30,000 jobs last month after prior losses, but consumer caution could weigh on April trends.

On the public sector side, state and local hiring has been positive, but with federal aid levels uncertain and austerity rhetoric growing in Washington, those tailwinds may reverse. Federal government jobs are expected to decline modestly again in April.

Labor Market Metrics Under the Microscope

Beyond the headline numbers, investors should keep an eye on the prime-age employment-to-population ratio, which dipped to 84.5% in March—the lowest since January 2023. Another decline would signal growing slack, especially among the 25-54 age group, a key barometer of labor market health.

Wage growth will be closely monitored for signs of softening. March’s 3.8% YoY increase was already down from 2024’s 4.0% average. A cooler wage print in April would suggest that employer bargaining power is growing as labor tightness eases—potentially welcome news for inflation watchers but a red flag for consumption-led growth.

Also worth noting is the share of unemployment due to voluntary quits, which dropped to just 12.3% in March—a low figure given the 4.2% jobless rate. A further dip would imply falling worker confidence in switching jobs, another signal of a cooler labor market.

Market and Fed Implications

A weaker-than-expected jobs print would likely trigger a dovish reaction in rates markets, as investors recalibrate the Fed’s reaction function. While Chair Jerome Powell has emphasized patience, a soft labor report would lend urgency to growing calls for rate cuts—especially amid elevated tariffs, declining consumer confidence, and weak Q1 GDP.

The market does not expect the Fed to move at next week's meeting. However, there has been speculation Powell could strike a slightly more dovish tone. The CME Fed Fud Futures are pricing in a 60% chance that the Fed will lower rates in it's next meeting.

Nomura’s Jeremy Schwartz argues that “a solid April employment report will encourage the Fed’s patient approach,” but that the “uncertain headwinds from tariffs, deteriorating business sentiment, and federal layoffs leave risks skewed toward a sharper downturn.”

Conclusion: A Report That May Set the Tone

The April jobs report will serve as the final word in a week dominated by warning signs. While the consensus anticipates a moderation—not a collapse—in job creation, the market’s sensitivity to downside surprises is elevated. With election-year tariff volatility rising and core inflation still sticky, the labor market now holds the key to understanding whether the Fed is behind or ahead of the curve—and whether the economy is gliding to a soft landing or preparing for a harder fall.