Payrolls Mar 2025: Into the Weeds

We dig into the occupational line items and March 2025 deltas that flowed into better-than expected-payroll adds driven by strong Services growth.

Apr 04, 2025

I now can now go into the world and make Nike running shoes…

A monthly gain of 228K nonfarm payrolls is an above-median month that shows employment has not felt to the trade war fire yet despite moderate negative revisions to Feb and Jan data (see Payroll March 2025: Last Call for Good News? 4-4-25).
The challenge of today’s report is that the job gains are particularly high in lower wage Services jobs with Healthcare (+78K), Leisure & Hospitality (+43K), and Retail Trade (+24K). Food and Beverage linked services swung back hard this month, contributing +51.3K jobs or about 25% of the private payrolls. (Food services and drinking places +30.6K and +20.7K Food and Beverage Retailers.
The performance of the manufacturing sector continues to provide a measure of the “emergency” that is being leveraged for such onerous tariffs since the growth is not there. The long tail of history behind manufacturing weakness begs a much more surgical set of solutions than the current tariff upheaval.

The above chart covers the monthly payroll changes by key industry groupings that we track from the Payrolls report. The March numbers buck the recent trend of below median payrolls with an important caveat of a -48K negative revision for February.

The top gainers on the right-hand side are Services heavy and continue some of the overarching secular trends in the growth of Healthcare, Hospitality, and Warehousing that we’ve looked at in publications past. The state of affairs with this report is that it can be seen as the last pre-trade war release even if some employers already started planning for cost structure disruptions. The next few months will see every cost scrutinized to mitigate tariff damage. Many of the recent Services gains will be in the crosshairs if consumer spending pulls back amidst higher prices.

The next series of charts including the above show some key time horizons across the industry groups with granular details. We start at the broadest groupings with some key manufacturing and goods details in the chart above.

The key driver of strength in this morning’s report is the better-than-expected growth in Services jobs and a still growing Government payroll even with cutbacks to Federal jobs rolling in this month and last. Services is the biggest mover given the US essentially a “services economy” comprising 71% of Nonfarm payrolls. This month’s +197K punches above its heavyweight status at 86% of 228K gains this month.

Away from Services, the good-producing and manufacturing side saw mixed results with Construction numbers standing out at +13K payroll adds this month. With the trade war slowly unfolding with China’s retaliation and partial responses from Canada, the debates have moved into framing the extent of these “reciprocal tariffs” and how many will remain under the extreme market pressure. It is certain that costs will be increasing but the mixed message on “negotiation” complicate the themes.

Manufacturing planning and execution takes time, and the tariff assumptions need to outlast the whimsical nature of Trump policy changes and inconsistent messaging. The cyclical influence of demand will still drive the decision-making process but the economics of the tariffs cannot be a constantly shifting, unreliable variable.

The above chart details the durables manufacturing line items that add up to a languishing US manufacturing base that has resisted revival given decades of offshoring. The LTM period for durables is down -87K jobs after another small -3K decline this month. With mixed results since COVID, the rationale to support domestic manufacturing capabilities is evident. This is true even more so for higher value-add electronics and chips manufacturing capabilities underpinning the technology and AI arms race.

Computer and electronics payrolls dwindled across the past 5+ years and are an example of where tariff policy could be used to provide a better environment for developing domestic capabilities. However, broad brush tariff measures are suboptimal for encouraging domestic manufacturing investment overall given the time horizons involved when the current tariff policy so heavily relies on executive orders that are constantly part of low visibility backroom negotiations.

The Nondurables piece of manufacturing is laid out above. The question as we look at the list above is which of these would reasonably be expected to make a comeback and if they are industries where we really need domestic capabilities for. Trade inherently is meant to allow those countries with competitive advantages to do what they do best. Tariffs can help protect those industries where the competitive advantage is lacking (e.g. labor costs) but might be an important capability for the nation as a whole. That is a judgement call where there will be a wide range of opinions (do we need to make sneakers and shoes?).

The problem with such broad policy is that it’s unlikely that we ever recover some industries such as textile or apparel industries. The US may desire the ability of its labor force to add much more value elsewhere. The mass deportations also shift the profile of the labor pool in many industries.

Construction sees another strong month with +13K job adds given and a positive signal for overall demand. Where tariffs change project economics on materials costs will be an incremental hurdle for continued labor demand and other new investment programs will be a challenge to handicap relative to the rhetoric. This month sees a tradeoff between Residential Specialty Contractors (-13K) to Nonresidential Specialty Contractors (+19K).

Services above is the 800-pound gorilla for US payrolls. We’ve already covered the extent to which the strength this month underpinned the better-than-expected headline number. The lines above only show one weak spot in -10K for Administrative and Waste Services. Within that category, the weakness is in Employment Services (which tallies Temporary help services), so it is reasonable that some of those variances are shifting to other lines in the Services payroll numbers.

Tariff-induced inflation likely translates quickly to weakened consumer sentiment and spending cuts, disproportionately affecting discretionary sectors such as hospitality and retail above. Retail will also see their cost of sales crushed by tariffs that dramatically exceed their margins. March’s strong Services employment numbers could reverse quickly if consumer budgets tighten significantly, and especially if recession becomes a reality.

The final chart in the collection looks at the Government employment lines that have been hot in headlines as DOGE antics made constant waves. The BLS figure of 12K federal jobs lost year-to-date appears low compared to recent reports suggesting far greater layoffs (up to 280K). While we expect reporting lags and classification nuances, we’ll await future reports for more clarity around DOGE's full impact.

That area of Government payrolls is still only 10% of the overall government payrolls above and will not move the needle much on headline numbers as it rolls in. Without discounting the importance of those jobs in a well-functioning government, the market seems to have been quick to isolate those losses from the overall picture. The State and Local Government numbers remain on a positive trajectory, continuing strong trends in the LTM period.

In the narrower considerations around jobs, the question will be how much short-term pain will be inflicted by the trade war before – and if – the reciprocal tariffs are adjusted to more reasonable levels. We see a likely path of higher inflation and rising unemployment and slowing growth playing out as pain will put the Fed in an unenviable position once again.

Tariff and Trade links:

Tariffs: Diminished Capacity…for Trade Volume that is…4-3-25
Reciprocal Tariff Math: Hocus Pocus 4-3-25
Reciprocal Tariffs: Weird Science Blows up the Lab 4-2-25
Tariffs: Stop Hey What’s That Sound? 4-1-25
Tariffs are like a Box of Chocolates 4-1-25
Auto Tariffs: Questions to Ponder 3-28-25
Fed Gut Check, Tariff Reflux 3-22-25
Tariffs: Strange Week, Tactics Not the Point 3-15-25
Trade: Betty Ford Tariff Wing Open for Business 3-13-25
CPI Feb 2025: Relief Pitcher 3-12-25
Auto Suppliers: Trade Groups have a View, Does Washington Even Ask? 3-11-25
Tariffs: Enemies List 3-6-25
Happy War on Allies Day 3-4-25
Auto Tariffs: Japan, South Korea, and Germany Exposure 2-25-25
Mini Market Lookback: Tariffs + Geopolitics + Human Nature = Risk 2-22-25
Reciprocal Tariffs: Weird Science 2-14-25
US-EU Trade: The Final Import/Export Mix 2024 2-11-25
Aluminum and Steel Tariffs: The Target is Canada 2-10-25
US-Mexico Trade: Import/Export Mix for 2024 2-10-25
Trade Exposure: US-Canada Import/Export Mix 2024 2-7-25
US Trade with the World: Import and Export Mix 2-6-25
The Trade Picture: Facts to Respect, Topics to Ponder 2-6-25
Tariffs: Questions to Ponder, Part 1 2-2-25
US-Canada: Tariffs Now More than a Negotiating Tactic 1-9-25
Trade: Oct 2024 Flows, Tariff Countdown 12-5-24
Mexico: Tariffs as the Economic Alamo 11-26-24
Tariff: Target Updates – Canada 11-26-24
Tariffs: The EU Meets the New World…Again…Maybe 10-29-24
Trump, Trade, and Tariffs: Northern Exposure, Canada Risk 10-25-24
Trump at Economic Club of Chicago: Thoughts on Autos 10-17-24
Facts Matter: China Syndrome on Trade 9-10-24
Tariffs: Questions that Won’t Get Asked by Debate Moderators 9-10-24
The Debate: The China Deficits and Who Pays the Tariff? 6-29-24
Trade Flows: More Clarity Needed to Handicap Major Trade Risks 6-12-24
Trade Flows: Deficits, Tariffs, and China Risk 10-11-23
Midyear Trade Flows: That Other Deficit 8-10-23
State of Trade: The Big Picture Flows 12-18-22

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