Policy uncertainty and blistering job cuts in Washington threaten to shake the U.S. economy off its moorings, traders and analysts say, with fresh employment data set to provide the latest picture of the effects so far.
The Bureau of Labor Statistics is set to release its monthly employment report for February at 8:30 a.m. ET Friday. Analysts expect to see roughly 170,000 new payrolls added last month, up from January’s 143,000 job gains. The unemployment rate is expected to have held steady at 4%, a historically low level.
Less than two full months into office, President Donald Trump’s new administration has whipped up storm clouds for the otherwise solid economy he inherited, promising to overhaul it to address voters’ widespread discontent.
In recent weeks, consumer confidence has taken a downturn as households shift more focus from spending toward saving. Meanwhile, the combination of Trump’s still-evolving tariff agenda and the massive job cuts sought by billionaire adviser Elon Musk’s Department of Government Efficiency initiative have raised the twin specters of higher unemployment and higher prices, with increasing invocations of stagflation.
The BLS may not have picked up the full extent of those forces yet, as its survey period for the February report covers only the first two weeks of the month. That’s one reason Wells Fargo Senior Economist Sarah House expects the numbers to look fairly sturdy, along with the retreat of rough January weather, which dented employment early in the year. But that picture could soon sour, she warned.
“We are likely to see some headwinds as we move through the year,” House said. “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.”
In the run-up to Friday’s BLS numbers, two unofficial reports showed a job market that was throttling back: Job-cut announcements in February reached their highest one-month level since the depths of the pandemic in mid-2020, the consultancy Challenger, Gray & Christmas said Thursday.
Wednesday, the private-sector payrolls processor ADP tallied 77,000 net gains in February, far fewer than the 148,000 forecast. The decline included recent tech layoffs in the information services sector and losses in education and health services — jobs that often rely on federal grants, ADP Chief Economist Nela Richardson said in a call with reporters Wednesday.
“And so here you might see some uncertainty as policies are being digested and assessed,” she said, referring to the federal workforce cuts. “We don’t know exactly what this represents, but we are seeing a measurable decline in hiring in key sectors of the economy.”
With uncertainty rising, major retailers warn that they’re likely to ask customers to pay for some of the cost increases from Trump’s tariffs. Target and Best Buy raised alarms about that likelihood this week, days before the White House offered temporary reprieves for some of the duties it announced. Walmart, too, has warned it won’t be entirely “immune” from the new import taxes on America’s top trade partners.
Richardson said retail will be a “sector to watch” in Friday morning’s report because the trade, transportation and utilities category was a main driver of job gains in ADP’s January numbers. She said her company’s February tallies reflected the post-holidays “sluggishness” in consumer spending and added that the BLS data should give some more insight into where retail hiring is headed.
Some Wall Street firms have estimated the potential job losses triggered by DOGE alone could total 500,000, though Barclays analysts recently argued that the macroeconomic impact from even that many job losses would be relatively constrained. Federal payrolls account for just 1.5% of overall jobs, and even knock-on effects to government contractors wouldn’t dramatically alter the labor-market picture, the bank researchers said.
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