Corporate earnings surge while tariff-related layoffs increase the divide

Gary Cohn, who previously led the National Economic Council under President Donald Trump, has blamed the administration’s tariff strategy for the worsening employment situation, stating that increased production costs are forcing companies to reduce their labor spending. Speaking on Face the Nation, Cohn noted that businesses, unable to shift these higher costs onto consumers, are trimming their staff to protect profits. This development has paralleled a significant drop in job creation, with only 22,000 new positions added in August 2025 compared to 79,000 in July, according to the Bureau of Labor Statistics.

Cohn pointed out that companies have moved from “labor hoarding” after the pandemic to more aggressive cost management. Rather than hiring replacements, firms are letting their workforce shrink as older employees retire. This marks a reversal from the pandemic-era rush to hire and retain talent. “We’ve shifted from holding onto workers to a phase where companies are actively seeking to cut costs,” Cohn remarked.

In response to the softening job market, the Federal Reserve lowered interest rates by 0.25 percentage points in September 2025, marking its first rate cut since December 2024. Fed Chair Jerome Powell recognized the employment risks, mentioning that “recent graduates and minorities are struggling to secure jobs.” Powell also indicated that two additional rate cuts could occur in 2025, though the Fed continues to balance its goals of curbing inflation and supporting employment.

The White House has defended the tariffs introduced during Trump’s presidency, claiming they led to $3 trillion in domestic investment and job growth. However, Cohn argued that these measures have put pressure on businesses. While corporate revenues rose by 6.3% in the second quarter of 2025, profits increased even more, highlighting a growing disconnect between company performance and worker benefits. The administration’s response to recent employment data—including the dismissal of former BLS commissioner Erika McEntarfer after weak July numbers—adds further complexity to the labor market picture.

The adoption of automation and artificial intelligence has intensified challenges in the job market, especially for entry-level positions. A Stanford study cited by CNBC found that AI is replacing junior workers in technology and marketing, and younger job seekers are facing longer searches. At the same time, leading tech companies such as Google, Microsoft, and Meta have collectively laid off nearly 90,000 employees in 2025, according to Layoffs.fyi. Cohn stressed that the decline in job opportunities is widespread, not just limited to the tech sector, as companies focus on reducing expenses.

The Federal Reserve’s recent and anticipated rate cuts are intended to encourage hiring, but experts remain wary. Morningstar observed that the Fed’s outlook relies on inflation gradually easing, though ongoing tariffs and supply disruptions could keep prices elevated. The central bank’s autonomy has also been questioned as the Trump administration has replaced several Fed board members with supporters, including economic adviser Stephen Miran. Miran’s support for substantial rate reductions aligns with the president’s efforts to stimulate the economy.

Cohn concluded that while the current labor market difficulties may be short-lived, the negative effects are already apparent. With corporate earnings climbing and hiring freezes in effect, job seekers—especially recent graduates and minorities—are facing tougher competition. Although the Federal Open Market Committee’s plans for more rate cuts in 2025 could offer some relief, the outlook remains uncertain due to ongoing changes in labor demand and policy-driven economic challenges.