U.S. employment growth has slowed in 2025, with average monthly job gains dropping from 170,000 in 2024 to about 75,000 through August of this year. Policymakers are paying close attention to the reasons behind this slowdown as they work to balance the Federal Reserve’s goals of maximum employment and price stability.
Multiple factors have influenced recent trends in job growth, including advancements in artificial intelligence, an aging population, and lower immigration rates. In addition, recent increases in tariff rates may be affecting labor demand. Tariffs can both increase input costs for import-dependent firms—potentially leading them to reduce hiring—and protect domestic companies from foreign competition, which could make those firms more likely to hire.
Researchers at the Federal Reserve Bank of Kansas City sought to estimate the direct effect of tariffs on U.S. employment growth so far in 2025 by analyzing each sector’s exposure to imports. Their findings suggest that sectors with higher import exposure experienced slower job growth compared to those less exposed to imports.
“Chart 1 shows that jobs in sectors with higher import exposure grew more slowly than jobs in sectors with lower import exposure, suggesting tariffs may have weighed on employment,” according to the authors. “The blue line suggests that sectors more exposed to imports faced a greater decline in job growth, which we attribute to the direct tariff effect. Therefore, tariffs have likely reduced employment growth, though there is considerable uncertainty around the exact effect, and we cannot rule out that tariffs had no direct effect on employment growth.”
Using data from January through August 2025, their analysis estimates that without the direct effects of tariffs, average monthly job growth could have been about 19,000 higher during this period. This would also translate into a possible increase of 0.1 percentage points in the unemployment rate if labor force size remained constant.
“Chart 2 quantifies how many more jobs might have been added to the economy absent direct tariff effects,” they write. “The green bar shows that the economy could have added 19,000 more jobs each month, on average…though there is again considerable uncertainty around this estimate.”
Overall results indicate that domestic firms may not have increased hiring as much as expected due to tariff impacts—a pattern similar to what was observed after previous rounds of tariffs introduced in 2018.
The analysis notes limitations: it focuses only on short-term direct effects and does not attempt to measure broader or indirect consequences of tariffs on overall economic activity or long-term shifts such as production moving back into the United States.
Johannes Matschke is a senior economist at the Federal Reserve Bank of Kansas City and Mariia Dzholos is a research associate at the bank. The authors state: “The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.”
