Did trade wars stop businesses from hiring? The May jobs report will give us the answer.

Economists anticipate a slowdown in U.S. job creation for May, projecting 125,000 new jobs with the unemployment rate remaining at 4.2%, reflecting concerns that ongoing trade wars are impacting business hiring plans. This figure is notably lower than the previous two months and the typical monthly average, with some indicators like ADP data and the Fed's Beige Book suggesting a weakening labor market. While a weak report isn't expected to immediately trigger Fed rate cuts, it could expedite the central bank's timeline, particularly if wage growth, forecasted to slip to 3.6%, continues to slow.

Analysis

The upcoming May U.S. jobs report is anticipated to show a significant slowdown in hiring, with economists polled by The Wall Street Journal forecasting 125,000 new jobs, a marked decrease from the 177,000 and 185,000 reported in the preceding two months and below the typical 180,000 monthly average. This expectation reflects growing concerns that ongoing trade wars, characterized by broad U.S. tariffs, are creating uncertainty and causing businesses to delay hiring and investment; evidence includes ADP's report of the slowest private-sector job growth in nearly two years and the Federal Reserve's Beige Book indicating "widespread" talk of hiring delays. Despite the projected slowdown in job creation, the unemployment rate is expected to remain stable at a historically low 4.2%, supported by low jobless claims and layoff rates, suggesting companies are not yet significantly increasing firings. However, the labor market exhibits signs of softening beneath the surface, with a waning number of industries hiring; notably, healthcare has accounted for a substantial 44% of all new jobs in the first four months of 2025. The timing of May's employment data collection, coinciding with heightened trade war angst, and potential seasonal adjustment effects, introduce "wild cards" that could result in a particularly weak report, with Richard Moody, chief economist of Regions Financial, noting, ”One thing there is no shortage of at present is uncertainty, and there is plenty of that looming over the May employment report.” Furthermore, wage growth is forecasted to decelerate to a 3.6% year-over-year rate, matching a post-pandemic low, a development viewed favorably by Federal Reserve officials aiming to control inflation. While a weak May report is not expected by Wall Street economists to trigger immediate interest rate cuts, it could accelerate the central bank's timetable for such action, with investors currently pricing in a potential rate reduction by September according to the FedWatch tool.

Key Decisions for Investors

• Investors should closely scrutinize the May jobs report for confirmation of the hiring slowdown and its attribution to trade policy uncertainty, as this will be a key indicator of economic resilience.
• Monitor the unemployment rate and the breadth of industry hiring beyond headline figures, as deterioration in these areas could signal deeper labor market weakness and a potential shift in economic momentum.
• Pay close attention to the wage growth data, as continued deceleration towards the 3.6% forecast could strengthen the case for earlier Federal Reserve interest rate cuts, potentially impacting fixed income and equity valuations.
• Given the heightened uncertainty surrounding the May report due to trade tensions and seasonal adjustment factors, investors should be prepared for increased market volatility and consider if current portfolio allocations adequately reflect these near-term risks.