Sluggish labor market progression
The U.S. restaurant industry is experiencing a slowdown in job growth, with July seeing an addition of only 73,000 jobs, a figure lower than expected, and prior months' jobs estimates being significantly revised downward. This trend is attributed to a combination of factors, including the impact of tariffs and the increasing use of technology inside restaurants.
The Trump Administration's recently announced tariffs have had a negative effect on overall U.S. job growth and economic output, including in sectors linked to the restaurant industry. Research indicates that tariffs implemented in 2025 are projected to reduce U.S. real GDP growth by about 0.5 percentage points annually in 2025 and 2026, with a persistent long-run economic shrinkage of 0.4%, equivalent to $115 billion annually (in 2024 dollars). On the labor market, the tariffs are associated with a 0.4 percentage point rise in unemployment by the end of 2025 and a 0.7 point increase by the end of 2026, resulting in about 500,000 fewer payroll jobs overall by the end of 2025.
In the restaurant industry specifically, while direct quantitative data is limited, tariffs increase costs for food producers and distributors by raising prices on agricultural inputs and imported goods. This effect is indirectly reflected in tariffs on U.S. exports of agricultural products being targeted reciprocally by other countries, which constrains sectors supplying food products. Increased costs along the supply chain—such as for dairy, fruits, vegetables, and meat due to reciprocal tariffs—raise prices for restaurants, squeezing margins and potentially restraining hiring and investment.
Furthermore, tariffs drive inflationary pressures with average household costs increasing by about $2,400 annually due to tariff-related price hikes, which can reduce consumer spending including dining out. In large economic centers like California, tariffs have led to significant costs ($11.3 billion in tariff costs for businesses in early 2025) and a loss of over 64,000 jobs across all sectors. The port of Los Angeles, a key gateway for food imports crucial to restaurants, was operating below capacity at 70%, impacting supply chains and job postings in logistics and trade by 40%. This disruption further affects the restaurant industry's ability to source ingredients efficiently and cost-effectively.
Additionally, the slowdown in restaurant job growth may also be due to the increasing use of technology inside restaurants. The average monthly job growth in the industry has been flat so far this year, and traditionally tepid summer job growth is compounded by overall employment numbers being slow over the past two years, indicating weak industry sales and traffic.
The Fed's decision to lower interest rates has been delayed due to concerns about tariffs and their potential impact on consumer prices. The weak labor market and overall economic stagnation increase the likelihood of the U.S. Federal Reserve lowering interest rates in September.
The Restaurant Business Editor-in-Chief, a longtime industry journalist with a focus on restaurant finance, mergers and acquisitions, and the economy, particularly quick-service restaurants, has been closely following these developments.
It's important to note that last year, the average monthly job growth was 0.09%, the year before it was 0.17%, and in 2022 it was 0.42%. The labor force participation rate has decreased by 0.5% over the past year, to 62.2%. Stock market trading started with a decrease on Friday.
As the tariff situation evolves, it will be crucial to monitor its impact on the restaurant industry and the broader economy. The industry, already facing challenges from technological advancements, may need to adapt to these new circumstances to maintain growth and job creation.
- The unexpected slowdown in restaurant job growth could be exacerbated by the ongoing impact of tariffs on the industry, as increased costs along the supply chain and inflated prices for imported goods and agricultural inputs may further squeeze restaurant margins and potentially restrict hiring and investment.
- In the realm of general-news, the restaurant business is not only dealing with the challenges posed by technological advancements but also grappling with the financial implications of political decisions such as tariffs, which have been shown to decrease real GDP growth, increase unemployment, and negatively affect business sectors, including restaurants.
