Welcome to the May 2025 installment of The Economy Explained, with Gusto!

The Gusto Insights Group is here to make you smart on the economy so you can better support your clients, who we know are asking tough questions right now. In this video, we’ll talk about what’s happening in the economy, what that means for businesses, and what to keep an eye on in the coming months.

The economy is steady, but small businesses are growing more cautious

At the national level, data continues to show a solid economy. Here are some of the key indicators we monitor that give us a sense of how things are looking: 

• Unemployment: Currently remains low at 4.2%. The labor market is adding jobs steadily, with an average of 155,000 new jobs per month this quarter.
• Consumer spending: Grew 1.8% in Q1. That’s slower than the previous quarter, but still a solid sign that households are spending.
• Wage growth: Slowed to 3.5% year over year. For your clients, this helps ease pressure on labor costs while still supporting consumer demand.

In general, small businesses are holding steady and continuing their core business operations.

But at the same time, sentiment is falling. Small business optimism has declined for several months, and economic uncertainty is at a five-year high. Even though businesses are maintaining day-to-day operations, many owners are unsure how to plan beyond the next 60 days, let alone the next six months. That hesitation is being driven in large part by unclear tariff policy, but also by persistent concerns about interest rates and consumer behavior.

Small businesses are still hiring—but slowly and cautiously

For the past several years net hiring, which is the hiring rate after taking into account terminations, has been slow. Small business hiring so far this year has been in line with 2023 and 2024. On average, there’s about one opening for each unemployed person. That’s an important context for your clients:while your clients may no longer be experiencing the high turnover and labor costs associated with the height of the labor reshuffle in mid-2022, there are fewer people available to quickly fill jobs.

However, that trend doesn’t hold across all industries. The number of open positions per unemployed person in transportation and utilities jumped to 3.6 jobs per unemployed person. Wholesale trade similarly surged to 2.4. Part of the reason for this is because businesses spent the first quarter importing to get ahead of tariff announcements. Preliminary data from Q1 show imports increasing 41% compared to Q4 2024. Employment increased as businesses rushed to stock inventory. 

Across the economy, we’re also seeing slower turnover. Hiring rates and termination rates are both low. This suggests businesses aren’t aggressively growing or downsizing—they’re staying put and riding out the uncertainty. Additionally, people who currently have jobs are not leaving their current positions. 

You may want to help your clients understand how their current staffing model aligns with their budget and revenue forecasts. If they’re thinking about expansion, you can work with them to model different hiring scenarios and timelines.

Slower wage growth is easing pressure on labor costs

Wage growth continued to slow this quarter, which is welcome news for many of your clients. While wages are now growing more slowly than at any time since before the pandemic, wage growth is still greater than the inflation rate. 

That shift brings relief. It means your clients can better predict labor costs and free up cash for other priorities. And because wage growth is still outpacing inflation, workers are maintaining purchasing power, which is an important support for consumer-facing businesses.

You can help clients take advantage of this moment by reviewing payroll projections, reassessing growth investments, or using freed-up cash flow to build resilience in other parts of the business.

Tariffs continue to drive uncertainty

Tariff policy has shifted significantly in recent months, and although some of the steepest rates have been rolled back for at least three months, the future remains unpredictable. Many businesses can’t confidently anticipate what their costs will be in 90 days, let alone six months.

This uncertainty is already influencing decisions upstream. Importers are front-loading inventory purchases. Businesses in affected sectors are reevaluating pricing and supply strategies. For accountants, this is a moment to help clients understand their exposure and build flexible plans around it.

Gusto has compiled a resource hub for small business owners, which includes:

• A plain-English explanation of tariffs and how they work
• A link to the Harmonized Tariff Schedule for real-time updates
• A directory of funding opportunities and grants by state

These resources can help your clients take action during an unpredictable time—and reinforce the trusted guidance you already provide.

What this means for you and your clients

Even with solid economic fundamentals, small businesses are facing a high degree of uncertainty. And in uncertain times, business owners turn to trusted partners like you to help make sense of it all.

Here are three ways you can support your clients right now:

1. Focus on planning and process

A stable labor market means less turnover. That gives your clients a chance to invest in internal systems and efficiency. Help them review workflows, budgeting processes, and team structures while things are steady.

2. Build resiliency into financial plans

Policy uncertainty, especially around tariffs and interest rates, is making it harder to plan. Offer scenario-based forecasting, cash flow modeling, and cost reviews to help clients make decisions under uncertainty.

3. Stay up to date on tariff guidance

We’ve created a resource hub for small business owners with links to the Harmonized Tariff Schedule, state-level funding sources, and a guide for navigating trade policy. Feel free to explore it and share it with your clients.

That’s your May 2025 edition of The Economy Explained with Gusto.