Tariffs are making it hard to find jobs: Trump's former economic advisor Gary Cohn points to rising costs

The U.S. job market is tightening significantly for young Americans and recent graduates, driven by rising tariffs, substantial tech layoffs, and a corporate shift towards cost-cutting, according to former NEC Director Gary Cohn. This occurs despite robust Q2 corporate financial performance, which saw revenues increase by 6.3% and profits jump double-digits, indicating companies are prioritizing labor cost management to protect margins. The Federal Reserve has responded with interest rate cuts to stimulate growth, acknowledging the difficulty for younger job seekers, as the market transitions from post-COVID labor hoarding to a more cautious employment strategy.

Analysis

A significant disconnect is emerging in the U.S. economy, characterized by robust corporate profitability juxtaposed with a deteriorating labor market, particularly for new entrants. While corporate revenues grew 6.3% and profits increased by double digits in Q2, job creation has slowed dramatically, with August adding only 22,000 jobs compared to 79,000 in July. According to former NEC Director Gary Cohn, this paradox is driven by a strategic shift in corporate behavior from post-COVID "labor hoarding" to aggressive cost management to protect margins against rising tariff-related expenses. The technology sector is a key contributor to this trend, with firms including Google, Microsoft, and Meta collectively laying off nearly 90,000 workers this year. Acknowledging the strain on younger workers, the Federal Reserve has initiated monetary easing, cutting interest rates by a quarter-point with the potential for further reductions to stimulate the economy and counteract the hiring slowdown.

Key Decisions for Investors

• Investors should be cautious about assuming strong corporate earnings will translate into broad consumer strength, as the weak hiring data and focus on labor cost-cutting could dampen future consumer discretionary spending.
• The aggressive layoffs at tech giants like META, GOOGL, and MSFT, despite their profitability, signal a sector-wide focus on efficiency; monitor upcoming earnings for evidence that these cost-cutting measures are successfully protecting or expanding margins.
• Given the Federal Reserve's dovish pivot to support the labor market, consider overweighting positions in interest-rate-sensitive sectors that may benefit from a lower rate environment.
• Scrutinize companies with significant exposure to tariffs and global supply chains, as their ability to maintain profitability will depend on managing labor costs, a strategy that carries its own set of economic and reputational risks.