At the worst point of the labor shortage that emerged in the wake of the Covid-19 lockdowns, Thunderdome Restaurant Group had 100 people sign up for a job interview and only 15 show up. Of the two workers it hired, one never came in.
The job market has cooled significantly since then, and Joe Lanni, who runs the Cincinnati-based company with his brother, now faces a different dilemma: how to grow the business, which has over 50 locations, while controlling costs as concerns about the economy spread.
So they’re rethinking menu items like freshly made tortillas that require a dedicated full-time worker. They are also planning to shutter a handful of locations where sales have been softest, while adding more outposts of their fast casual restaurants that are doing well.
Uncertainty about the economy has skyrocketed as President Trump has begun to radically reshape the global trading system with tariffs, cut off a crucial supply of workers with an immigration crackdown and floated big changes to the rules and regulations that govern how businesses operate. Consumers, who fuel the American economy, have become more hesitant to spend, and according to recent surveys, both the services and manufacturing sectors are slowing.
But the economy does not appear to be at the cliff’s edge just yet, and employers like Mr. Lanni don’t want to be too cautious and miss out on opportunities.
As his restaurants gear up for outdoor service this summer, Mr. Lanni said, he still expects head count across the company to swell by about 200 people, to around 1,500 employees, before receding in the fall. The stakes are high, however.
“You can go from making a little bit of money to losing a lot of money very quickly, because it’s very, very hard to manage labor, food costs and service in a sales environment that does not support the operation,” he said.
The Federal Reserve is facing its own conundrum as it wrestles with what to do about interest rates. Most economists expect Mr. Trump’s policies to hobble growth while pushing up consumer prices, a tricky combination typically referred to as stagflation and one that would tie the Fed’s hands.
“I legitimately do not know which way this is going to break,” said Beth Hammack, president of the Federal Reserve Bank of Cleveland, who met with Mr. Lanni and several other business leaders in Cincinnati this week. Ms. Hammack said she had heard nothing in those conversations to suggest that the Fed needed to immediately lower borrowing costs, even if business owners are on edge.
“I would rather wait and move quickly to play catch-up if I really don’t know what the right next move is,” Ms. Hammack said. “And right now, I really don’t know what the right next move is based on all of the information and policies that we’re responding to.”
Cooling Off, but Not Yet Cracking
After reaching its lowest level in more than 50 years in 2022, unemployment has edged up as companies have slashed the number of available positions and slowed hiring. Fewer Americans are quitting their jobs, muting wage growth. Jobless claims are up, but layoffs have stayed low. Data on Friday on hiring in May showed the labor market continuing to lose momentum but not yet cracking: Employers added 139,000 jobs for the month, and the unemployment rate was stable at 4.2 percent.
Haunted by pandemic-era staffing issues, companies appear hesitant to let go of employees. Instead, they have opted to cut back on hours or institute more flexible schedules. There are exceptions, including Proctor & Gamble, which announced this week it would slash 15 percent of its non-manufacturing work force, or 7,000 jobs in Cincinnati, over two years.
At wine and jazz lounge Nostalgia, in the Over-the-Rhine neighborhood in Cincinnati, the owner, Tammie Scott, said she was still hiring and planned to open two more locations this year. But she has arranged shorter shifts for her employees, and will close early on nights when business is slow.
“If we continue to see a decrease in traffic, then we won’t need three bartenders on a weekend night. We’ll just need two,” she said. “It’s all really contingent on what our guest count is looking like week over week.”
On-again, off-again tariffs and government spending cuts are a huge source of anxiety. And with Nostalgia already quieter, she is even more cautious about passing along tariff-related price increases on items like wine and tequila.
“There’s a lot of external factors that are really impacting people’s job security and their financial security in general, so they’re definitely being more choosy with how they spend and how often they spend,” she said. “The last thing we want to do is to have to go up $2 on a cocktail or a few dollars on a bottle of wine.”
Rich Graeter, whose family has owned and operated Graeter’s Ice Cream out of Cincinnati for five generations, is facing a similar problem. The team raises prices about once a year to account for climbing costs, but there is a limit to doing so when consumers are more stretched financially than in the past. Demand recently fell after the grocery giant Kroger raised the price of a pint of Graeter’s by a dollar to $7.99.
Most ingredients for the company’s artisanal ice creams are sourced domestically. But the plastic spoons and cups its 57 shops use and the T-shirts and hats that it sells come from China, exposing those products to tariffs.
Still, Graeter’s is looking to expand its footprint, opening several more stores this year and expanding its direct-to-consumer division. That means hiring more workers, something Mr. Graeter said had become easier as competition for fresh talent had become less fierce.
“Nobody likes chaos,” Mr. Graeter said. “As long as the chaos isn’t more chaotic than it is already — and I’m not sure how that could be — I think we just have to roll with the punches, take it day to day and adapt.”
Tricky Trade-Offs
Last summer, Jerome H. Powell, the Fed chair, made an important change in the way he spoke about the labor market. No longer was it a source of inflationary pressure, he told lawmakers in July. A month later, he elaborated that this meant the Fed was not looking for “further cooling in labor market conditions.”
That pivot laid the groundwork for the Fed to begin lowering interest rates, which it did by a larger-than-usual half a percentage point in September. It paused additional cuts in January after reducing borrowing costs by a percentage point.
The central bank has two goals: Foster a healthy labor market, and keep inflation low and stable. Before Mr. Trump enacted sweeping tariffs, the central bank appeared to have both of those in hand, a remarkable feat considering the extent of the inflation surge that erupted after the pandemic.
But now, the Fed must consider what it will do should its goals come into tension with each other; namely, that inflation speeds up as growth slows. That has made Fed officials cautious about making any big decisions until they have more clarity on Mr. Trump’s policies and how the economy will respond.
“Given that the most likely outcome, in my opinion, is that both sides of our mandate could be challenged, it’s not a good time to be pre-emptive,” said Ms. Hammack, who will cast a vote on policy decisions next year. “Because there is so much uncertainty about how the economy could play out depending on what the policies end up being, it makes me more nervous to operate just off the forecast.”
Right now, the Cleveland Fed president thinks the central bank’s current settings are not far from a level that neither revs up growth nor slows it down, known as a neutral stance. The labor market looks healthy, she said, and with inflation not yet back to the Fed’s 2 percent target, “it feels like you’re supposed to be in a somewhat restrictive posture to make sure that we’re meeting both sides of the mandate.”
Her bigger concern is what happens with inflation given price pressures are still top of mind for many Americans and Mr. Trump’s tariffs risk making them worse, even as they curb growth.
To reduce borrowing costs again, as Mr. Trump has demanded the Fed do, Ms. Hammack would need to see clear signs that the labor market was materially weakening, she said. Rate increases, which she did not rule out, would be warranted if inflation rose substantially and expectations about future price pressures shifted sharply away from the Fed’s target.
Waiting too long to lower interest rates is not without costs, and Ms. Hammack has warned against being “complacent about the strength we’re seeing.” But if circumstances change quickly, the central bank has proved its willingness to react aggressively.
“We can and have been responsive and move very quickly when we need to,” she said.