Reviewing Tariffs’ Effect on May Jobs

How have tariffs affected the job market? This question was top of mind when May’s report hit the presses last Friday. It is perhaps predictable many sought hints about tariffs’ fallout—both negative and positive—since this is the first jobs report covering an entire post-Liberation Day period. But in our view, these data don’t support any of those takeaways, regardless of the short-term conclusion you may draw. Late-lagging jobs data take a long while to confirm whatever forward-looking markets are pricing in.

First, the numbers: Nonfarm payrolls rose by 139,000 in May, beating consensus estimates for a 130,000 gain and moderating from April’s downwardly revised 147,000 increase.^[i] The unemployment rate held at 4.2%, remaining in the 4.0% - 4.2% range since May 2024.^[ii] Many observers expressed relief, having expected some tariff-induced labor market weakness. But in our view, May’s jobs report was never likely to support tariffs’ theorized effects on jobs—negative or positive.

A lot of mainstream economists believe the Trump administration’s tariffs will lead to higher prices. To control costs, businesses would have to slow hiring plans—or, worst-case scenario, let workers go. On the flipside, others claim tariffs will create jobs since more expensive overseas goods would motivate manufacturers to produce more here—allegedly meaning more manufacturing workers.

But May’s report doesn’t back either of those hypothetical outcomes: The results were mixed, with no big outliers. For example, the supposedly tariff-sensitive manufacturing and transporting and warehousing industries didn’t see large gains. The former shed -8,000 jobs while the latter added 5,800.^[iii] In contrast, service-providing industries—which are generally less sensitive to tariffs—drove jobs growth, led by private education and health services (87,000).^[iv]

Exhibit 1: May’s One-Month Employment Change for Select Industries

Source: Bureau of Labor Statistics, as of 6/9/2025.

Another way to think about this: If you saw May’s numbers without the tariff backdrop, would they jump out to you? For some recent context, nonfarm payrolls rose by 147,000 in April and 120,000 in March.^[v] Over the past 12 months, the average monthly gain was 149,000.^[vi] May’s first estimate isn’t wildly off those figures. What about at the industry level? Manufacturing’s average monthly change over the past 12 months was -6,000 (not far off May’s -8,000).^[vii] Healthcare, the big contributor to recent employment gains, added 62,000 jobs in May, above the average monthly gain of 45,600 over the past 12 months.^[viii] In our view, May looks pretty “normal”—we don’t see concrete evidence tariffs affected businesses’ hiring decisions.

We also don’t expect the big claims about tariffs to play out, for better or worse. They are a negative, in our view, but the fallout is likely smaller than most fear. They won’t be an economic boon, either, in our opinion. But regardless of your take, the evidence still wouldn’t show up in May jobs data.

To understand why, view this from the affected industry’s perspective. For argument’s sake, let us assume tariffs have a clear effect (negative or positive). If so, they will take time to show up in the data. Imagine you are a big retailer and the Trump administration announces tariffs are coming. You won’t wait to see if the government follows through. You will do your research, make some educated projections and boost inventories in anticipation of near-term future demand so you can have a large buffer to figure out your longer-term tariff reduction or avoidance strategy. Now, this decision is risky—demand could end up weaker than you forecast, leaving you with a glut of unsold merchandise—but you think the tradeoff is worthwhile since you can avoid tariffs and keep business humming. If you are right, you may not need to make big changes to your workforce. This isn’t just theory: Many big retailers boosted their inventories in the months leading up to Liberation Day to blunt tariffs’ bite, keeping them in need of workers to sell this product.^[ix] Regardless, one month after announced-then-delayed tariffs likely isn’t long enough to force any big changes to your business plans.

What if you are a widget maker? The Trump administration claims tariffs will motivate you to hire in the US. Will they, though? You already have—and invested substantially in—a well-operating system, from overseas factories to solid relationships with suppliers and logistics coordinators. Even if you wanted to set up domestic operations, you couldn’t do so immediately. You need to build factories, find new suppliers and restructure supply chains. All that takes time. Could it be worth it to avoid tariffs? Maybe! But even if it was, you probably aren’t making big changes to your workforce one month after a tariff flip flop.

The same goes for builders. Yes, tariffs may spur demand for domestic real estate, but the benefits don’t necessarily outweigh the costs. One, tariffs make imported goods more expensive—so if you need to get supplies from overseas, your costs will go up, perhaps canceling out some of your potential gains. But government levies aren’t the only variable influencing your decisions. You can’t just start new construction tomorrow. You must also go through the permitting process and persuade communities that may be against building new developments (NIMBYism), regardless of how profitable it may be. All those factors will likely cause you to wait a bit before going on a hiring spree.

And, hanging over it all: Will the tariffs that allegedly motivate this behavior even last? Many businesses would likely be reluctant to invest when political whims determine the project’s economic sensibility.

In uncertain times, businesses will be loath to make changes. They may pause recruitment, but they also aren’t likely to cut headcount significantly since it takes time to hire and train new workers. Now, tariffs are economic negatives, and we don’t dismiss how they hinder business—nor do we rule out the possibility of recession. But, for good or ill, it is too early to determine tariffs’ broader economic implications, and we will continue to monitor developments. As frustrating as uncertainty is, though, refrain from reading too much into the data—the first full jobs report after Liberation Day won’t tell you much either way.