Non-farm payrolls are coming in strong! If cracks appear in the U.S. labor market, the probability of the Federal Reserve cutting interest rates in June is expected to increase significantly

According to the Zhitong Finance APP, economists around the world are closely monitoring the U.S. non-farm payroll data report for April, which will be released on Friday. Some economists warn that the U.S. labor market may experience severe turbulence due to the tariff war initiated by the Trump administration, significantly increasing the likelihood that financial markets will expect the Federal Reserve to begin its first interest rate cut of the year in June. The new round of global trade war ignited by Trump's tariff policy has further darkened the economic growth outlook for the U.S. and the world. Economists generally expect that the global trade war launched by President Trump will raise global prices, weaken consumer spending, and could significantly impact the labor market this year and next, ultimately pushing the U.S. economy into recession.

Cleveland Federal Reserve President Loretta Mester recently stated that if economic data by June can provide a clear direction, the Federal Reserve may take action in June. Federal Reserve Governor Christopher Waller, who has long held a hawkish stance on monetary policy, has recently shifted towards a dovish position, repeatedly emphasizing that if the high tariffs imposed by the Trump administration force U.S. companies to lay off more workers, he would support interest rate cuts to protect the U.S. labor market.

Torsten Sløk, chief economist at Apollo Global Management, a top asset management firm on Wall Street, expressed a cautious outlook for the U.S. labor market ahead of the non-farm payroll data release by the U.S. Bureau of Labor Statistics on Friday. "The April employment report will be released on May 2 (Friday) at 8:30 AM Eastern Time, and some leading indicators suggest that the U.S. labor market may show a significant weakening trend in the coming months," Sløk stated.

Sløk's warning comes at a time of increasing uncertainty in the U.S. economy. Notably, the survey period for this non-farm payroll data coincides with the critical period following the announcement of the Trump administration's reciprocal tariff policy on April 2, which exacerbated financial market volatility (with global stock markets once evaporating over $10 trillion in market value) and significantly undermined business confidence in the U.S. Both the business survey and the U.S. household survey were completed during this critical week.

Although the Trump administration announced a 90-day delay on some of the most severe "reciprocal tariffs" shortly after "Liberation Day" due to the continued plummet of U.S. stocks, bonds, and currency markets, during this period, the benchmark tariffs for most countries other than China were adjusted to 10%. However, according to Bloomberg's economic research team, the "effective tariff rate" in the U.S. is currently close to 23%—the highest level in over a century. This has already severely impacted consumer and business confidence in the U.S.

The upcoming months' non-farm data is very important! Especially the unemployment rate indicator

Regarding non-farm data expectations, economists generally anticipate that U.S. employers are expected to add 130,000 jobs in April. However, Sløk from Apollo Global Management indicated that this number carries significant downside risks, as the Michigan survey and local Federal Reserve surveys show that American households are increasingly pessimistic about the future. His internal economic models even suggest that job positions may unexpectedly shrink—meaning that, in Sløk's view, the number of new jobs could be negativeSlok emphasized that the non-farm employment data report's survey week coincided with the week following the announcement of reciprocal tariffs. In other words, the institutional and household surveys were conducted during a week when businesses faced significant uncertainty. Regarding the unemployment rate, economists generally expect the April unemployment rate to remain at 4.2%, but some economists, including Slok, predict that the likelihood of the unemployment rate exceeding expectations is increasing and could reach 4.5%.

Nevertheless, the current U.S. labor market still shows resilience. The previous April non-farm employment data was stronger than expected, with an increase of 228,000 jobs, far exceeding the general economist forecast of 135,000, surprising Wall Street.

The latest data released by the U.S. Department of Labor last Thursday showed that for the week ending April 19, the seasonally adjusted initial claims for unemployment benefits increased by 6,000 to approximately 222,000, consistent with the median expectation from economists surveyed by Bloomberg, and remained flat compared to the previous period, close to the lowest level in a year. This statistic reflects that despite facing inflationary pressures caused by the unprecedented tariff policies of the U.S. government, the U.S. labor market remains robust.

Goldman Sachs' latest research shows that initial unemployment claims, the Philadelphia Fed manufacturing index, the ISM services index, and the unemployment rate are the best indicators currently warning of a slowdown or "recession" in the U.S. economy. These economic data indicators typically send significant negative signals just one month after a deep economic slowdown or recession begins, while hard data, such as GDP, may take up to four months to show clear signs of weakness.

The performance of these economic data indicators is better than others because they are released frequently, have small revisions, and can be published earlier. For example, initial unemployment claims are released every Thursday. In past economic recession events with clear catalysts—such as the 1973 oil shock, the Volcker rate hikes in 1979-1980, the spike in oil prices due to the 1990 Kuwait incident, and the collapse of the internet bubble in 2001—economic hard data (like real GDP) typically takes about four months to show clear signs of weakening in real-time data.

If signs of a recession in the U.S. economy become increasingly evident, the probability of the Federal Reserve taking "preemptive rate cuts" will also increase significantly. Therefore, labor market-related data, such as initial unemployment claims and the unemployment rate, are crucial for investors to assess the health of the U.S. economy. If both data points significantly exceed expectations in the short term, it may indicate that the U.S. economy is beginning to enter a recession, and the Federal Reserve may initiate a new round of rate cuts"If the economic slowdown is severe, and there is even a possibility of entering a recession, then I expect the FOMC to support a faster and larger reduction in the Federal Reserve's policy interest rates," said Federal Reserve Governor Christopher Waller, who has voting rights on the FOMC (Federal Open Market Committee) during his term.

Cleveland Fed President Loretta Mester, a voting member of the FOMC in 2026, recently stated, "If we receive clear and convincing data before June, and if we know that taking action at that time is correct, then I believe the Federal Reserve's monetary policy committee will take action, provided we have a clear understanding of the correct policy direction at that time." Mester made this comment when asked about the possibility of an interest rate cut in June.

Is the U.S. Economy in Crisis in 2025?

The Trump administration's decision to impose astonishing tariffs of up to 145% on China (one of the top three trading partners of the U.S.) and at least 10% on most other countries has led many forecasters to warn of a sharp slowdown in the global economy, with some even predicting a deep economic recession in the U.S. this year. This is partly due to the significant downward pressure on household demand in the U.S., which has been facing inflationary pressures since the high inflation period of 2022, with some households experiencing tight savings, while household demand or consumption accounts for about two-thirds of the U.S. GDP.

A recent survey report from Bloomberg shows that, impacted by the global tariff war initiated by the Trump administration, renowned economists consulted and interviewed generally believe that due to a new round of global trade games and the so-called "trade policy tug-of-war" caused by U.S. tariff policies affecting major global economic powers such as China, the EU, and Canada, the probability of the U.S. entering a recession in the next 12 months has jumped from 30% in the March survey to 45%, which means the probability of a recession in the U.S. is almost equivalent to flipping a coin. According to BCA Research, a well-known research institution on Wall Street, the probability of a recession in the U.S. has exceeded 50%, while JP Morgan predicts the probability of a recession could be as high as 60%.

According to statistics compiled by economist Slok in a recent research report, the severe negative impact of Trump's tariff policy on U.S. businesses has already become apparent: new orders are declining, capital expenditure plans are continuously decreasing, inventories are rising before the tariffs take effect, and U.S. companies are lowering their profit expectations.

For ordinary American households, the consumer confidence index has fallen to a historic low. To avoid price increases caused by tariffs, consumers have rushed to purchase goods in advance before the tariffs were implemented, undoubtedly overextending their future purchasing power. At the same time, the tourism industry, especially international travel and foreign consumers traveling to the U.S., has begun to show significant signs of slowdown. Economists from Apollo analyzed the downward trajectory of the U.S. economy from April 2025 to the summer, emphasizing that factors such as repeated adjustments to tariff policies and extended transportation times will lead to significant disruptions in the U.S. supply chain, thereby affecting economic activity, and ultimately, the U.S. may enter a recession by the summer of 2025