Many have been wringing their hands over a potential surge in unemployment this year. The worry is for good reason. Unemployment has increased since 2023, and there's been a steady drumbeat of layoff announcements this year, especially after the Department of Government Efficiency's job cuts kicked in.
The Federal Reserve has been focusing on the jobs picture since last Fall, prompting Fed Chair Jerome Powell to cut interest rates by 1% through December.
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The policy shift led to widespread expectations that the Fed would continue cutting rates in 2025. Unfortunately, that hasn't happened yet because of sticky inflation and fear that tariffs will increase prices.
Despite those concerns, market watchers have still been predicting that the Fed will cut rates by another quarter-percentage point in June. However, those predictions are shifting following a surprising jobs report for April.
The Fed hits the pause button as economy struggles
Gross Domestic Product, or GDP, measures economic activity. The advance GDP estimates for the first quarter aren't overly reassuring, given that they reflect a 0.3% contraction in the economy, according to the Bureau of Economic Analysis.
The dip in GDP was caused mainly by companies pulling forward imports to avoid President Trump's newly launched tariffs and an increase in gold trading activity, which has accelerated since Trump's election.
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Nevertheless, the dip comes as other metrics also show signs that the U.S. economy is weakening.
The unemployment rate has increased to 4.2% from 3.4% in 2023, and layoffs jumped over 60% in April to over 105,000, according to Challenger, Gray, & Christmas, partially because of Department of Government Efficiency, or DOGE, job cuts.
The newly installed tariffs, which include a 25% tariff on Canada, Mexico, and autos, plus a staggering 145% tariff on Chinese imports and a 10% baseline tariff on imports, alongside job weakness, have taken a toll on consumer and business confidence.
Businesses are increasingly pressing the pause button on spending decisions and awaiting clarity on trade negotiations with China and other countries, subject to the currently paused reciprocal tariffs.
Meanwhile, consumers' worries over upcoming inflation and job security have caused the Conference Board's Expectations Index to plummet to 54.4 last month, the lowest reading since October 2011, and well below the 80 level that historically can forecast recession.