Trump's tariffs projected to increase unemployment, but escape mass layoffs: Allianz

Allianz forecasts that inflation and consumer prices will rise due to President Trump's tariff hikes.

President Donald Trump's tariffs are expected to cause the unemployment rate to rise over the course of this year, though mass layoffs aren't expected, according to a new analysis.

Allianz economists, in a report published Thursday, said the labor market in the U.S. has remained steady "despite mounting economic headwinds" and noted indicators that show that resilience should continue through the first half of this year.

"The job vacancy rate will be the first to signal a recession (expected in Q2-Q3) but we do not expect large layoffs," they explained. "The U.S. economy faces a unique combination of supply constraints (more than conventionally thought) and increasingly tight immigration policy. Hence, companies are more likely to hoard scarce labor compared to previous recessionary episodes, preventing a surge in unemployment."

"Despite the inflationary effects of steep tariff hikes and persistently high policy uncertainty, we do not expect large layoffs as U.S. companies are still enjoying healthy profits and also face elevated labor shortages. Nevertheless, we expect the unemployment rate to rise, peaking at 5% by Q1 2026," the Allianz economists wrote.

The unemployment rate was 4.2% in March, which was the most recent month for which data has been released by the Labor Department, so the Allianz analysis would see the unemployment rate by 0.8 percentage points (pp) over the rest of 2025 into the first quarter of 2026.

The Trump administration's efforts, via the Department of Government Efficiency (DOGE) to reduce the size of the federal workforce are ongoing, as agencies continue to move forward with layoffs and extend buyout offers to workers. Lawsuits have been filed against some of the downsizing moves, which have held up efforts to fire probationary federal employees.

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