Summary
In this month's edition of our Race, Jobs and the Economy series decoding each month’s Bureau of Labor Statistics (BLS) jobs report, we will give an overview of the current state of the labor market, the possibility of a recession and the effects it could have on American households in tandem with impending tariffs.
Analysis of Topline Figures in the March BLS Report
In February, the economy added 151,000 jobs, while the unemployment rate ticked up to 4.1%. Although the topline figures are relatively solid, especially considering the current tumultuous political climate, the report does contain some concerning red flags.
The government sector only added 11,000 jobs, while the federal government shed almost 10,000 workers. As a strong backstop for the economy, declines in public sector hiring leave a weak private sector to pick up the slack. Additionally, nearly 590,000 fewer people were employed in the economy in February, the biggest one-month decline in the past 14 months.
The human resources provider ADP produces a monthly employment report based on payroll data from their clients. The latest report found that only 77,000 private sector jobs were added in February, the lowest reading since July 2024. While the construction and manufacturing sectors performed well (26,000 and 18,000 additional positions respectively), the education and health services sectors reported collective losses of around 28,000 jobs.
Adding to these concerns, US-based employers announced 170,000 job cuts in February, the highest figure since July 2020. The combination of slow government hiring and lousy private sector job creation are red flags for an economy barely into the third month of 2025.
The BLS jobs report did not assuage the concerns of investors as markets continue their months-long decline and the unpredictable Trump administration continues to push aggressively on trade policy. The concerns have boiled over into open talks of an impending recession. The odds of a recession have risen dramatically, with even President Trump himself admitting that a recession is possible.
The Disparate Impact of Tariffs
Despite a pause on the 20% across-the-board tariffs set to take effect on March 6th on Canada and Mexico, consumers are increasingly rattled. Many expect tariffs to increase prices on a variety of goods and services. As the 2024 election showed, among all goods and services, food costs may be the most salient concern for households.
According to the Survey of Consumer Expenditures, food accounts for 16% of total expenditures in the average household. If tariffs cause food expenditures to increase by even 10%, the effects would be heaviest on low- and moderate-income households by a projected additional amount of $848 per year. Although higher-income households would pay a higher dollar amount on food ($2,054 per year), the cost to lower-income households as a percentage of total expenditures is about 60% higher.
These estimates assume that total household expenditures will remain constant while food costs increase. This assumption may not hold for upper-income households who can increase their expenditures by drawing down their savings. However, low- and moderate-income households will feel the brunt of these economic changes, as they are more likely to be on a fixed budget that cannot easily accommodate higher food prices.
While most analyses of the projected effects of the tariffs find they would increase food prices by 1% to 3%, a 10% increase in food prices is not unrealistic for two reasons. First, there is the inflation spiral that occurred during the COVID era. This led to a 9%, or $440 per year, increase in food expenditures during the 2021-2022 period, which could serve as an indication of future trends. For Black households, overall food expenditures increased by 19% in those years, or $1,128. A 10% increase in food expenditures for low-income Black households would push their share of total expenditures to 23%.
Secondly, the monopoly power of grocery store chains and food distributors often leads to a phenomenon known as seller’s inflation. This is when firms take advantage of price shocks by leveraging their market power to charge higher prices to maintain their profit margins. The practice was so egregious that the Biden-Harris Administration began calling out the practice, with Kamala Harris campaigning on capping food prices during her presidential run. Many of the analyses of the effects of the tariffs may be underestimating food price increases because they ignore the potential effect of market concentration.
Consumer sentiment has dropped dramatically because of the uncertainty of the future, while households report delaying or cutting out non-essential spending in anticipation of increasing consumer costs. In January, consumers cut down their spending by the largest amount in 4 years. This includes a large reduction in households planning to take a vacation within the next six months.
Given that people often plan to vacation months in advance, reductions in planned travel can be a sign that consumer expectations of the future are dampening. Additionally, as the Wall Street Journal has reported, the share of spending by top earners accounts for half of all consumer spending. Thus, reductions in future travel by this group show that even high-earning households are cutting expenditures based on a deteriorating economic outlook.
Recession Odds Continue to Climb
A recession would be devastating for many households because so many Americans lack financial security. Liquid assets, like savings and cash, are the first line of financial defense for a household. Liquid asset poverty is defined as the inability of a household to sustain itself at the federal poverty level (~$7,000 for a family of four) for three months on liquid assets alone without income. Almost two-thirds of Black and Hispanic households are liquid asset poor, with over a third having less than $1,000 in liquid assets.
Upcoming tariffs on aluminum and steel are expected to raise the price of everything, from baseball bats to everyday grocery products. This comes at a time when inflation is picking back up, with the price of goods most central for families, like eggs, surging considerably. Consumers aren’t the only ones anticipating higher prices. Manufacturers are also expecting higher prices, with the price index surging to its highest point since June 2022. According to the Federal Reserve Bank of New York, firm inflation expectations have picked up also, reaching 2022 levels.
The combination of a potential trade war, rising prices and slow consumption growth has caused the Federal Reserve Bank of Atlanta’s GDPNow forecast to go from 2.3% in February to -2.4% presently. It is difficult to predict recessions, yet evidence in favor of one occurring in the near future is mounting. Moreover, what is certain is the devastating impact a potential economic downturn will have low-income and working class households who already report living paycheck to paycheck with the economy in its current state.
Joseph Dean is the Jr. Racial Economic Research Specialist with NCRC’s Research team.
Photo credit: Dariia Lemesheva via Upsplash
