US labour market shows signs of cooling amid growing stagflation fears

The US labour market showed a mixed picture in April, with job openings increasing slightly while layoffs ticked higher, signalling a potential shift towards a slower economy.

According to the latest Job Openings and Labor Turnover Survey (JOLTS) report from the Bureau of Labor Statistics (BLS), available positions rose by 191,000 to 7.39 million by the end of April, up from 7.20 million in the previous month, surpassing analysts’ expectations.

Economists had forecast 7.10 million openings, but the increase in vacancies was largely driven by sectors such as health care and social assistance.

However, not all industries experienced growth in job openings. Manufacturing, accommodation, and food services saw a decline in available positions, and state and local government education also showed a noticeable drop. The overall picture was one of stability, with job openings fluctuating within a narrow range of 7 million to 8 million for the past year.

Hiring increased slightly in April, rising by 169,000 to a total of 5.57 million, but the pace of new jobs was still far below the pace set earlier in 2022. While the rise in hiring may seem encouraging, the number of layoffs surged to 1.78 million, a worrying sign that companies could be trimming their workforces in response to mounting economic pressures.

Tariff uncertainty and its impact on the job market

One major factor affecting the labour market is the ongoing trade war and the tariffs imposed by the Trump administration. The uncertainty surrounding these import duties has left businesses struggling to plan for the future.

Last week, a US trade court blocked most of Trump’s tariffs, only for them to be reinstated by a federal appeals court. Economists say that businesses remain in limbo, unsure of whether the tariffs will be sustained or further escalated, which could affect their hiring and investment plans.

The tariffs have already had a dampening effect on business sentiment, contributing to the slower pace of hiring and increasing layoffs. Consumers are also feeling the effects, with growing concern over the labour market’s future.

The Conference Board’s labour market differential, a measure of the difference between jobs available and the number of unemployed workers, has narrowed considerably in recent months. The increasing uncertainty, combined with fears of rising prices due to tariffs, has weighed on consumer confidence and expectations for future job growth.

Stagflation fears push Fed’s “wait and see” stance

The Federal Reserve has taken a cautious approach to the current economic climate, particularly in light of the growing risks of stagflation—a combination of high inflation, slow economic growth and rising unemployment.

Although the labour market remains relatively strong, inflationary pressures and higher tariffs have created a complicated economic backdrop. Federal Reserve Chairman Jerome Powell recently acknowledged that while the economy is still in a “strong position”, there is a looming risk of stagflation if the tariff-driven uncertainty continues to rise.

At its most recent meeting in May 2025, the Fed opted to keep its benchmark interest rate steady, citing the need for more time to assess the impact of tariffs and a slowing economy. While the job market is still adding positions, the rise in layoffs and decline in voluntary quits suggest that employees are becoming more cautious about leaving their current roles.

The Federal Reserve, under Powell’s leadership, has long been focused on supporting maximum employment while keeping inflation under control. However, if stagflation takes hold, the Fed may face a difficult dilemma, as rising unemployment could be met with an increase in inflation.

The uncertainty surrounding tariffs is complicating the Fed’s decision-making process. Powell has emphasised the Fed’s “wait and see” approach, stating that it is too early to determine the full economic impact of the ongoing trade war.

If tariffs remain high and inflation continues to rise, the economy could slow down further, leading to job losses that could offset the gains made in the labour market.

While the Federal Reserve has been able to maintain a delicate balance so far, economists are closely watching for any signs of a sustained weakening in job growth or rising inflation.

Powell made it clear that, at this point, the central bank is in a good position to observe and adjust as the situation evolves. However, if stagflation becomes a persistent issue, the Fed may be forced to take more aggressive action, something that could bring even greater economic uncertainty in the months ahead.

While the JOLTS report brings a glimmer of hope for the US economy as job openings rose, but layoffs also remain high. The upcoming May jobs report will be a key indicator of how the labour market is reacting to these shifting dynamics.

If hiring continues to slow and layoffs increase, it could signal that the US economy is entering a period of stagnation, potentially leading to more cautious policies from the Federal Reserve.