The United States labour market continued to show resilience in February, with employers adding 160,000 jobs, according to economists’ estimates. This marks a solid increase from the 143,000 positions added in January. However, the outlook remains increasingly uncertain as the Trump administration escalates trade conflicts, enforces mass deportations, and purges federal employees.
The Labour Department is set to release its official jobs report on Friday, with economists surveyed by data firm FactSet predicting that the unemployment rate will remain steady at 4 per cent. While the figures suggest a stable employment market, experts warn that growing economic headwinds could undermine future job growth.
Trade wars and immigration crackdowns pose risks
Despite ongoing concerns about the economy’s long-term trajectory, Lydia Boussour, a senior economist at EY, highlighted that momentum remains positive for now. However, she cautioned that rising tariffs and retaliatory trade measures could begin weighing heavily on businesses, affecting hiring decisions in the months ahead.
The Trump administration’s aggressive trade policies have already created tensions with key trading partners, leading to increased costs for American businesses. The White House’s latest tariff hikes on Chinese imports, alongside proposed levies on European and Mexican goods, have raised concerns about potential job losses in manufacturing and export-dependent sectors.
Meanwhile, Elon Musk’s purge of federal workers under the Department of Government Efficiency (DOGE) has not yet reflected in the February figures, as the Labour Department’s survey was conducted early in the month. However, experts predict a noticeable decline in federal employment in March and subsequent months.
Labour shortages and wage growth in focus
Despite the economic uncertainty, some sectors have continued to recover from recent setbacks. Diane Swonk, chief economist at KPMG, noted that hiring in the leisure and hospitality industry likely rebounded last month, following disruptions caused by the Los Angeles wildfires in January.
However, Swonk also warned of potential labour shortages due to the Trump administration’s harsh immigration policies. The revocation of asylum for nearly one million Venezuelan and Haitian refugees could prevent many from filling critical roles in industries such as hospitality, agriculture, and construction. These sectors often rely on immigrant labour, and the crackdown may exacerbate existing workforce gaps.
“The key issue will be who shows up for the jobs,” Swonk remarked. “Without access to a steady workforce, businesses may struggle to sustain operations, which could slow hiring and dampen overall economic growth.”
A cooling but resilient job market
The US job market has shown remarkable resilience despite high interest rates and inflationary pressures. However, it has gradually cooled from the rapid hiring seen in the aftermath of the COVID-19 pandemic.
- In 2021, job growth averaged 603,000 jobs per month as the economy rebounded.
- By 2022, the figure had fallen to 380,000 jobs per month.
- In 2023, the pace slowed further to 216,000 jobs per month.
- Last year, employers added an average of 166,000 jobs per month.
The cooling trend was expected, given the Federal Reserve’s efforts to curb inflation. Between 2022 and 2023, the Fed raised interest rates 11 times, bringing them to their highest levels in over two decades. However, the economy remained resilient, bolstered by strong consumer spending, business productivity gains, and an influx of immigrant workers who helped alleviate labour shortages.
Inflation peaked at 9.1 per cent in June 2022, but by September 2024, it had dropped to 2.4 per cent. This allowed the Fed to cut interest rates three times last year. However, inflation has since stalled, prompting the central bank to pause further rate cuts.
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Wages, inflation, and federal reserve policy
Economists expect that average hourly earnings rose by 0.3 per cent in February, compared to a 0.5 per cent increase in January. While this slower wage growth may be welcomed by the Fed, it is unlikely to be significant enough to prompt an immediate rate cut.
Wall Street traders, using the CME Group’s FedWatch tool, now anticipate the next rate cut in May, though confidence in that prediction is wavering. The Fed’s next policy meeting on March 18-19 will provide further insight into its inflation-fighting strategy.
Future uncertainty as trade policies shift
Beyond interest rates and wage growth, economic uncertainty is mounting as Trump ramps up his protectionist trade policies. The administration’s proposed tariffs on a range of imports could have knock-on effects on hiring and wages, as businesses grapple with higher costs and retaliatory trade restrictions.
“Steep tariff increases could cause adjustments in business decisions, with significant effects on hiring and wages,” Boussour explained. “If firms face higher input costs, they may delay hiring, reduce wages, or cut jobs altogether. This could lead to a more severe job slowdown, weaker income growth, and restrained consumer spending amid higher inflation.”
With multiple challenges converging—including trade wars, immigration restrictions, and economic policy shifts—the US job market faces a period of heightened uncertainty. While February’s employment numbers suggest stability for now, economists remain wary of the long-term risks that could disrupt economic growth in the months ahead.
