The labor market is holding up at the start of 2025, but the Trump administration is warning there could be trouble ahead, at least in the short run.
U.S. payrolls grew by 151,000 jobs in February and the unemployment rate moved up a tenth of a percentage point to 4.1%, the Labor Department announced Friday. The economy has now added jobs for 50 consecutive months, but both numbers were modestly worse than expected, as analysts had been looking for job growth of about 160,000 and an unemployment rate of 4.0%, unchanged from the month before. Growth was stronger in February than it was in January, easing concerns that the labor market has entered a downturn.
RSM Chief Economist Joseph Brusuelas said the report indicates that the U.S. continues to be at full employment, and the underlying trend looks quite healthy. “The American economy is resilient and is strong enough to absorb the body blows that are coming from higher trade taxes and slower government spending and hiring,” he wrote Friday.
Painful “detox” ahead? Despite the solid jobs report, some economists are worried that the labor market may have shifted to a lower gear, and some fear it has reached an inflection point driven by the new Trump administration but not yet captured by the monthly reports.
“There were fears that today’s jobs report would reveal some deeply unsettling news around the health of the labor market,” Seema Shah, chief global strategist at Principal Asset Management, said in a statement, per NBC News. “Yet, while the worst fears were not met, the report does confirm that the labor market is cooling.”
The February data includes 10,000 layoffs by the federal government — larger than usual, but much smaller than the reductions in staffing the Trump administration says it is aiming for in the weeks and months ahead, and the federal job losses were more than made up for by 21,000 jobs gained at the state and local level. Moving forward, however, the federal government layoff number is expected to rise sharply.
Economists worry that hundreds of thousands of layoffs could weigh heavily on the labor market and the broader economy, and the negative pressure could be amplified by other parts of President Trump’s agenda.
“We are likely to see some headwinds as we move through the year,” Wells Fargo economist Sarah House said earlier this week. “It’s not just tariffs we’re contending with but also slower immigration. That’s going to affect labor force growth, and then we now have pretty aggressive efforts to curtail government spending.”
Treasury Secretary Scott Bessent did little to ease those concerns Friday. “Could we be seeing that this economy that we inherited starting to roll a bit? Sure,” he told CNBC. “And look, there’s going to be a natural adjustment as we move away from public spending to private spending.”
Bessent said the Trump agenda is forcing a fundamental change in the role of federal spending in the economy. “The market and the economy have just become hooked,” he said. “We’ve become addicted to this government spending, and there’s going to be a detox period.”
Part of the detox will involve pushing back against the economic inequality that has defined the U.S. for years, Bessent said. He blamed the Biden administration for creating “an unstable equilibrium” in which the top 10% of income earners accounted for 40% to 50% of consumption while “the bottom 50% of working Americans have gotten killed.”
The bottom line: The labor market is still chugging long, but enormous challenges lie ahead as the Trump administration attempts to use mass public employee layoffs, high tariffs and more tax cuts, largely benefitting the rich, as a means of reshaping the U.S. economy.