Given there are so many variables that could jeopardize the labor market—the Trump administration’s federal workforce cuts, concerns over tariffs and their inflationary impact, to name a few—the job gains from the latest jobs report from the Bureau of Labor Statistics was quite strong.

“On paper, the labor market still looks really solid,” Elizabeth Crofoot, a senior economist at Lightcast, told HR Brew. “There are some stormy clouds right above us, but…it’s moderating.”

Diving into the data. Employers added 151,000 jobs in February, up from the downwardly revised 125,000 in January. Healthcare again saw the highest gains, adding 52,000 jobs last month, followed by financial activities adding 21,000, and transportation and warehousing adding 18,000.

While unemployment ticked up slightly to 4.1% in February, it has primarily hovered between 4% and 4.2% since May 2024.

But underneath these strong top-line numbers, concerning trends linger.

Unemployment could increase in coming months, particularly as the Trump administration’s federal workforce cuts cause more workers to enter the job market. Federal government employment declined by 10,000 in February, as federal government layoffs and resignation offers began rolling out mid-month. Similarly, LinkedIn reported a 175% spike in DC-Baltimore government workers applying for jobs between September 2024 and mid-February, compared to just a 50% increase for non-government workers.

“It’s a somewhat small impact right now, but we’re going to start to see that move quickly in the next month or so, especially as we start to see how many workers are actually losing their jobs,” Crofoot said. Employers in regions where there are higher concentrations of federal workers could expect an influx of available talent, she noted.

Concerns from businesses and consumers over tariffs, which were partly postponed for Canada and Mexico yet again until April 2, and their inflationary impact could eventually hurt job growth. Businesses will be reluctant to invest and expand which means they might continue to hold back on hiring, Crofoot said. And, if consumer confidence falls (which it has started to already), that could lead to less spending, further hurting businesses. Some industries heavily dependent on consumer spending, including leisure and hospitality, and retail trade, reported job losses last month.

“It feeds uncertainty, which could actually heighten the effect on organizations and on talent,” David Ellis, SVP of talent transformation at Korn Ferry, said.

“If the delay in the tariff implementation gets extended, or…if economic or political uncertainty continues, then we might see organizations be even more selective about the jobs they fill,” he added.

Zoom out. Despite the Federal Reserve’s effort last year to ensure a soft landing, concerns over an impending recession are mounting again. Rising inflation from tariffs could clash with the Fed’s strategy to keep costs low, but a weakening labor market from federal workforce cuts will likely force the Fed to cut rates further anyways.

“I would say that we’re sort of back in the camp of recession risk, because our economy is more fragile than it was before, when the Federal Reserve was making decisions about whether to increase or decrease interest rates,” Crofoot said. “The Federal Reserve is going to have to make a decision and look at the data and say, Are we going to keep inflation down, or are we going to try to protect the labor market and reduce interest rates to keep the economy and businesses investing and hiring?”

Many HR leaders will likely have to continue to tread carefully with hiring in the coming months.

“​​It’s really causing them to think much more carefully about what they’re doing in relation to hiring,” Ellis said. At the same time, since voluntary turnover is low because of how difficult it is to find a new job, employers also have an opportunity to invest in their current workforce through things that are meaningful to them, such as L&D opportunities.

“What organizations potentially have now is a whole tranche of people who are really just there because they are too scared to go back into the job market,” he added. “So how do you lead somebody who’s just there for job security, versus somebody who is motivated by the work itself and the impact they can make on the job? I think that presents an interesting and relatively fresh conundrum.”

This report was written by Paige McGlauflin and was originally published by HR Brew.