Inside the trade-fueled economic growth scare

Driving the news: Private sector employers added just 77,000 jobs last month, less than half the gains in January, according to payroll processor ADP.

• "We are seeing a measurable decline in higher end sectors of the economy," ADP chief economist Nela Richardson told reporters Wednesday morning, calling out "hiring hesitancy" as companies assess policy shifts.
• "We have data going back to 2010 that suggests there are times in the market when employers respond to a level of uncertainty in the form of slower hiring," Richardson added.

Between the lines: The ADP report is not meant to preview what the all-important payrolls report might show when it's released Friday.

• It is, however, among the non-survey-based indicators hinting that policy uncertainty — particularly around what to expect on the tariff front — might be denting the labor market.
• The sector that would show spillover from Department of Government Efficiency layoffs into private sector contractors is professional and business services, which actually added 27,000 jobs, ADP said.

The Institute for Supply Management's monthly survey out Wednesday morning showed that the U.S. service sector accelerated in February, with sharp rises in its indexes for both new orders and employment.

• But comments from survey participants paint a more muddled picture.
• "Tariff actions have created chaos in information and pricing measures, forecasting and forward buys, which may artificially inflate purchases to be followed by a drop off," said one unnamed survey respondent from the accommodation and food services industry.
• "Business seemed to pop after the election, but uncertainty after the election seemed to take the 'wind out of our sales,' with uncertainty again increasing," said a firm from the professional, scientific, and technical services sector.

Reality check: Not every soft patch in the data is a sign the economy is making a meaningful turn.

• "We've seen other times where there was a slowdown in hiring as employers assess the lay of the land and quickly reversed," Richardson said.

For the moment, business sentiment appears to be driven not by the explicit cost of higher tariffs or loss of government contracts, but by Washington's atmosphere of unpredictability.

The big picture: Don't expect that to change anytime soon, as events of the last couple of days confirm.

• President Trump has always been a mercurial leader, but compared to his previous term, he has more eagerness to act aggressively and fewer staff advising caution as the administration pulls various policy levers.

Flashback: After implementing big new tariffs on America's three largest trading partners overnight Monday, Commerce Secretary Howard Lutnick hinted at a possible pullback Tuesday afternoon.

• "I think he's going to work something out with them," Lutnick told Fox Business, referring to Trump. "I think he's gonna figure out, 'you do more, and I'll meet you in the middle,'" Lutnick added. "We'll probably announce that [Wednesday]."
• In his address to Congress on Tuesday night, however, Trump sounded raring to go on both the Canada-Mexico tariffs and further measures that would affect more countries.

Then, Wednesday morning, Lutnick told Bloomberg that changes to the tariff plan would, in fact, come "this afternoon."

• "There are going to be tariffs — let's be clear — but what [Trump's] thinking about is which sections of the market that maybe he'll consider giving them relief until we get to, of course, April 2," Lutnick said.

The bottom line: The question is whether businesses will adjust to this reality, take it in stride, and continue hiring and investing at their 2024 clip — or if it proves paralyzing.