Tariffs Rattle Employment and Consumption, Trump-Driven ‘R-Fear’ Turns Real

Shadow Over the U.S. Economy Triggered by Tariffs
Consumer and Business Sentiment in Synchronized Decline
Crisis Signals Reinforce Expectations for Rate Cuts

The once-resilient U.S. labor market has entered a phase of abrupt cooling. In October, more than 100,000 nonfarm jobs were wiped out, marking the worst performance since the COVID-19 pandemic. The unemployment rate surged to 4.6%, rapidly eroding hopes for a soft landing. As the Trump administration’s tariff policies simultaneously weigh on employment, consumption, and corporate sentiment, fears of an “R”—recession—are beginning to loom large over the U.S. economy.

U.S. Unemployment at 4.6%, Highest in Four Years

On the 17th (local time), major international media outlets including The Washington Post cited data released a day earlier by the U.S. Bureau of Labor Statistics (BLS), reporting that the Trump administration’s economic policies have begun exerting strong downward pressure on the labor market. BLS figures show the U.S. employment landscape tracing a clear downward trajectory. While nonfarm payrolls increased by 64,000 in November—slightly above market expectations—this was nowhere near sufficient to offset the massive job losses recorded in October.

The revised October employment figures were particularly jarring. A total of 105,000 jobs vanished, far worse than initially estimated, marking the steepest contraction since the pandemic-era recession. August and September data were also revised downward, to a decline of 26,000 jobs and an increase of 108,000 jobs, respectively. Taken together, the revisions alone erased tens of thousands of jobs from the statistical record.

The unemployment rate has climbed sharply as well. Having stood at 4.0% in January, it jumped to 4.6% last month—the highest level since 2021—exceeding both the September figure of 4.4% and the market consensus of 4.5%. After peaking at 4.8% in October 2021, U.S. unemployment had fallen into the 3% range by 2023 before reversing course last year. Diane Swonk, chief economist at KPMG, observed that “the spike in the unemployment rate reflects a reality in which most Americans feel pessimistic about the economy, despite indicators suggesting growth.”

Manufacturing Revival Remains Elusive

These indicators align with a broader slowdown in the labor market seen in recent months. The U.S. Department of Labor’s Job Openings and Labor Turnover Survey (JOLTS) reinforced this trend. In October, job openings fell to 5.15 million and the hiring rate declined to 3.2%, down from 5.37 million and 3.4% the previous month. Layoffs, however, increased to 1.85 million, with the layoff rate rising to 1.2% from 1.1%, the highest level since early 2023. Analysts attribute employers’ growing reluctance to hire to the shock triggered by President Trump’s sweeping import tariffs. As tariffs push up goods prices, consumption—particularly among middle- and lower-income households—has become more selective, dampening overall spending.

Manufacturing, in particular, continued to shed jobs in November under the burden of rising costs stemming from the administration’s promised high tariffs. Contrary to claims that the trade war would revive U.S. manufacturing, companies on the ground are responding by freezing hiring or cutting headcount. Nicole Bachaud, labor economist at ZipRecruiter, said the latest labor data “point to a broad economic slowdown,” adding that companies are grappling with policy headwinds including tariffs, geopolitical uncertainty, and stubborn inflation.

Some observers argue that tariffs have in fact backfired in efforts to reshore manufacturing. U.S. factory utilization has declined for nine consecutive months, while erratic tariff policy has prompted manufacturers to postpone major investment decisions. The Wall Street Journal noted that “for manufacturing to return to the U.S., tariffs would need to be high enough to give domestically produced goods a competitive edge. But at those levels, the cost of imported inputs rises, inflicting short-term damage on U.S. manufacturing.”

Stronger Case for Rate Cuts

Other real-economy indicators are flashing similar warning signs. U.S. retail sales in October, released by the Commerce Department on the 16th, came in at 732.63 billion dollars, essentially flat. Reuters described the figure as “unexpectedly unchanged,” as it fell short of the market expectation of a 0.1% increase. This marked the weakest performance since May, when sales fell 0.8% following front-loaded consumption ahead of the administration’s announcement of reciprocal tariffs.

Retail sales growth for September was also revised down to 0.1% from a preliminary 0.2%. Analysts attribute this to heightened uncertainty about the future, driven less by income levels than by the unpredictability of policy shifts via executive orders. In effect, even households with income are cutting back on spending, signaling a broad crowding-in effect across income brackets.

Business sentiment is also cooling. The S&P Global U.S. manufacturing Purchasing Managers’ Index (PMI) for December slipped to 51.8 from 52.2 in November, the lowest reading in five months. The services PMI, which covers roughly two-thirds of U.S. economic output, fell to 52.9 from 54.1, a six-month low. All figures undershot economists’ expectations surveyed by Reuters. The composite PMI declined to 53.0 from 54.2. Reuters pointed out that “new business growth fell to a 20-month low, while new orders for goods declined for the first time in a year.”

These trends partially validate the Federal Reserve’s decision last week to cut rates by 25 basis points and have opened the door to further easing in the first half of next year. Following the data releases, investors began pricing in at least 58 basis points of rate cuts next year—more than double the 25 basis points signaled by the Fed last week. Expectations for a January cut, however, remain subdued. According to CME Group’s FedWatch tool, the probability of a rate cut held steady at 24.4% after the employment report. Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, said that while the labor market remains fragile, “the pace of deterioration is slow enough that the Federal Open Market Committee is unlikely to deliver additional monetary easing in January.”