The U.S. labor market remains resilient, but the effects of President Donald Trump’s tariffs are starting to show their strain. While the number of unemployment claims fell to a two-month low in mid-April, businesses continue to tread carefully, uncertain about the future impact of the trade war. The chaotic nature of Trump’s trade policies, with frequent shifts and new duties, has added an extra layer of unpredictability, especially for small businesses. In the midst of this, the housing market also faces mounting pressures, with building activity slowing down due to higher costs on materials and uncertainty about the economy’s future.
Stable Job Market, but Small Business Uncertainty Lingers
Last week, new applications for unemployment benefits dropped by 9,000, reaching 215,000—the lowest level since February. This decline suggests that, at least for now, the U.S. job market remains stable. However, as Michael Pearce, deputy chief U.S. economist at Oxford Economics, points out, “The labor market remains resilient… but we are most concerned about small businesses.” These businesses, which play a significant role in job creation, are finding it difficult to predict the long-term impact of Trump’s ever-changing tariff policies. Without a clear understanding of future costs, many companies are hesitant to ramp up hiring.
As the government continues to adjust trade rules, businesses remain in a holding pattern. This cautious approach has led to some economists expecting a rise in unemployment in the coming months, as companies adopt a “wait and see” strategy.
Housing Market Faces Slowdown Amid Tariff Uncertainty
Meanwhile, the housing market is also feeling the strain from tariffs. A recent report from the Commerce Department revealed that single-family housing starts plunged 14.2% in March, hitting an eight-month low. The drop was further compounded by rising building material costs due to tariffs, with the National Association of Home Builders reporting an average price increase of 6.3% for supplies. These increased costs are putting the brakes on construction, with many builders uncertain whether it’s worth continuing new projects in such an unpredictable environment.
As Stephen Stanley, chief U.S. economist at Santander U.S. Capital Markets, noted, “Even before all of the tariff news, housing demand was tepid, and new home inventories were bloated.” The added uncertainty surrounding tariffs only accelerates this decline, with many builders hesitant to break ground on new homes, particularly in the face of inflated material prices and an unpredictable market.
Uncertainty Puts Economic Growth in Question
With the trade war contributing to rising costs and economic uncertainty, U.S. growth forecasts for the first quarter have been downgraded. Gross Domestic Product (GDP) growth estimates are now below a 0.5% annualized rate, with the Atlanta Fed projecting a contraction of 0.1% for the first quarter. The rise in imports, as businesses rushed to bring in goods ahead of anticipated tariffs, has weighed heavily on GDP growth, adding to fears of a slowdown in the broader economy.
Despite these challenges, Federal Reserve Chair Jerome Powell acknowledged that the economy has slowed and is expected to continue to face obstacles as long as tariff-related uncertainty remains. Powell’s comments reflect growing concerns that the U.S. economy may struggle to maintain its momentum in the face of ongoing trade tensions.
An Uncertain Future for U.S. Growth
While the U.S. job market may not be in immediate jeopardy, the broader economy is facing mounting challenges. From rising unemployment fears to a sluggish housing market and weaker GDP growth, businesses are finding it increasingly difficult to navigate the uncertainty created by President Trump’s tariff policies. As small businesses face the brunt of these pressures, it remains to be seen how long the labor market and broader economy can maintain their resilience.
