U.S. Economy Faces Uncertainty as Tariffs Drive Job Losses

The significance of the employment report scheduled to be released this Friday has increased, following data indicating that the U.S. economy contracted in the first quarter. This report is crucial as it comes at a time when there are growing signs that President Donald Trump's tariff policies are putting pressure on the economy.

One report indicates that manufacturing companies are laying off workers as tariffs drive up prices. This development has heightened the importance of the employment market's condition for both financial markets and the Federal Reserve.

Economists predict that the employment report for April will show that the U.S. economy added 133,000 jobs, down from 228,000 in March. If the actual data falls significantly short of this expectation, it could signal a dangerous trajectory for economic growth, especially considering other economic data released this week showing that U.S. economic output shrank in the first quarter.

“This report has generated a lot of anticipation for Friday's employment data, as the trajectory of economic growth depends on the health of the labor market,” wrote Jeffrey Roach, chief economist at LPL Financial.

On Thursday, more signs of trouble in the labor market emerged. A survey of purchasing managers indicated that the manufacturing sector, which was intended to benefit from tariff policies, is struggling to adapt. The survey showed that manufacturers are laying off workers as tariffs are implemented.

“Companies participating in the survey continue to reduce their workforce through layoffs, natural attrition, and hiring freezes,” wrote Timothy R. Fiore, chairman of the Institute for Supply Management, in a report released on Thursday. “Layoffs are the primary means, indicating an increasing urgency to reduce the workforce.”

A disappointing employment report could influence the Federal Reserve, which is tasked with maintaining high employment and controlling inflation. A decline in employment numbers could prompt the Federal Reserve to lower its benchmark interest rate from the current high level to stimulate the economy, thereby reducing borrowing costs for various types of loans.