Mixed signals lately from the labor market are adding to angst for investors already on a knife’s edge over the potential threat that tariffs pose to inflation and economic growth.

Depending on the perspective, employers either are cutting workers at the highest rate in years or skating by with current staffing levels.

What has become clear is that workers are increasingly uncertain of their employment status and less prone to seek other opportunities, at the same time as job hunters are reporting it harder to find new positions, according to several recent surveys.

The sentiment indicators counter otherwise solid numbers showing up in more traditional data points like nonfarm payrolls growth and the jobless rate, which is still at a level historically associated with full employment and a bustling labor market.

Sound fundamentals

“Fundamentally speaking, things are still relatively sound in the United States. That doesn’t mean there are no cracks,” said Tom Porcelli, chief U.S. economist at PGIM Fixed Income. “You can just whistle past that and just hang your hat on the payrolls report, or recognize that the payrolls report is a lagging indicator and some of those other indicators that give you a better flavor of what’s happening under the surface are looking softer by comparison.”

Markets will get another snapshot of labor market health when the Labor Department’s Bureau of Labor Statistics releases its February nonfarm payrolls report Friday at 8:30 ET. Economists surveyed by Dow Jones expect growth of 170,000 jobs, up from 143,000 in January, with the unemployment rate holding steady at 4%.

While that represents a stable labor market, there are a number of caveats that point to more difficult times ahead.

Outplacement firm Challenger, Gray & Christmas reported Thursday that layoff announcements from companies soared in February to their highest monthly level since July 2020. A big reason for that move was the effort by Elon Musk’s Department of Government Efficiency to cull the federal workforce. Challenger reported more than 62,000 DOGE-related cuts.

DOGE actions as well as other labor survey indicators showing worker angst likely won’t be reflected in Friday’s jobs number, primarily due to the timing of the cuts and the methodology the BLS uses in its twin counts of household employment and jobs filled at the establishment level.

Consumer confidence drop

But a recent Conference Board report showed an unexpectedly large drop in consumer confidence that coincided with a spike in respondents expecting fewer jobs to be available as well as harder to get. Similarly, a University of Michigan’s survey saw a slide as respondents worried about inflation.

In the world of economics, such fears can quickly become self-fulfilling prophecy.

“If workers don’t feel confident that they’re going to be able to find a new job … then that’s going to be reflected in the economy, and the same in terms for how willing employers are to hire,” said Allison Shrivastava, economist at the Indeed Hiring Lab. “Don’t ever discount sentiment.”

In recent days, economists have been ramping up the potential impact for DOGE cuts, with some saying that multiplier effects involving government contractors could take the total labor force reduction to half a million or more.

“They’re going to have some trouble being reabsorbed into the economy,” Shrivastava said. “It also does shake people’s confidence and sentiment, which can certainly impact the actual economy.”

For now, Goldman Sachs said the DOGE cuts probably will lower the headline payrolls number by just 10,000 or so and exepcts weather-related impacts to be small. Overall, the bank said the current picture, according to alternative figures, is one of “a firm pace of job creation, and we expect continued, albeit moderating, contributions from catch-up hiring and the recent surge in immigration.”

In addition to the employment numbers, the BLS will release figures on pay growth. Average hourly earnings are expected to show a 0.3% monthly gain, up 4.2% from a year ago and about 0.1 percentage point above the January level.

Treasury Secretary Scott Bessent on Thursday offered a full-throated defense of the White House’s position on tariffs, insisting that trade policy has to be about more than just getting low-priced items from other countries.

“Access to cheap goods is not the essence of the American dream,” Bessent said during a speech to the Economic Club of New York. “The American Dream is rooted in the concept that any citizen can achieve prosperity, upward mobility, and economic security. For too long, the designers of multilateral trade deals have lost sight of this.”

The remarks came with markets on edge over how far President Donald Trump will go in an effort to attain his goals on global commerce. Stocks fell sharply Thursday despite news about some movement from the administration on Mexican imports.

In a speech delivered to a crowd of leading economists, Bessent indicated that Trump is willing to take strong measures to achieve his trade goals.

“To the extent that another country’s practices harm our own economy and people, the United States will respond. This is the America First Trade Policy,” he said.

Earlier in the day, Commerce Department data underscored how far the U.S. has fallen behind its global trading partners. The imbalance swelled to a record $131.4 billion in January, a 34% increase from the prior month and nearly double from a year ago.

“This system is not sustainable,” Bessent said.

Economists and market participants worry that the Trump tariffs will raise prices and slow growth. However, White House officials point out that tariffs did little to stoke inflation during Trump’s first term, touting growth potential from reshoring as companies look to avoid paying the duties.

“Across a continuum, I’m not worried about inflation,” Bessent said. He added that Trump considers tariffs to have three benefits: as a revenue source with the U.S. running massive fiscal deficits, as a way to protect industries and workers from unfair practices around the world, and as “the third leg to the stool” as Trump “uses it for negotiating.”

Thursday’s talk was hosted by Larry Kudlow, the head of the National Economic Council during Trump’s first term.

In addition to discussing tariffs, the two chatted about deregulation as well as the onerous debt and deficit burden the government is facing. The budget is already $840 billion in the hole through just the first four months of fiscal 2025 as the deficit runs above 6% as a share of gross domestic product, a level virtually unheard of in a peacetime, expansionary economy.

“This is the last chance bar and grill to get this done,” Bessent said of imposing fiscal discipline. “Everyone knows what they should do. It’s, do they have the willpower to do it?”

Bessent also advocated a deep examination of bank regulations, particularly for smaller institutions, which he said are burdened with rules that don’t help safety.

As Bessent spoke, stocks added to losses in what has been a tough week for Wall Street.

“Wall Street’s done great, Wall Street can continue doing well. But this administration is about Main Street,” he said.