I’m pretty sure they teach that phrase in medical school. But even if nobody wearing a white coat has ever said it to you as they approach you ominously holding a sharp object, you might still be familiar with the concept because it was introduced so memorably by in one of the best lyric lines/sound effect combinations in classic rock history: Pink Floyd’s Comfortably Numb (“...just a little pin-prick, they’ll be no more AHHHH-AH-AHHH! But you may feel a little sick.”)

If you’re even close to my age, you’ll probably be singing that in your head for the rest of the day (and I apologize for that.)But there is a point: Last week it wasn’t Dr. So-And-So (or PinkFloyd’s Roger Waters) who issued that warning, but U.S. Treasury Secretary Scott Bessent, who then went one better and described the adjustment period the economy is about to face as “detox”.¹  President Trump, too, publicly acknowledged that the sharp objects he and his administration are wielding will likely cause a little near-term discomfort: In describing the growing list of tariffs he plans to implement to a joint session of Congress on Tuesday night, he said “there will be a little disturbance, but we’re okay with that.”

Pink Floyd’s masterful lyric fits so perfectly here because it highlights not only the pain associated with a shot in the arm, but also the hoped-for medicinal value of the shot itself. Which, incidentally, is exactly what the Administration expects its economic policies to produce: a little pinch in the short-term, in exchange for big medical benefits in the long-term.

This probably isn’t the place to debate that view in detail. Thankfully, we really don’t have to because it’s that last phrase (the “we’re okay with that” part,) that stands out, precisely because it does two things: First, by acknowledging the discomfort their trade policies are creating while also admitting they don’t plan to significantly change course in the meantime, the President and Secretary brought home to markets the idea that at least some of the tariffs are more than just negotiation tactics and will likely be around for a while. Second, it puts to rest — at least for now — the idea that there is a “Trump Put” underneath the equity market whereby the President would significantly alter or even reverse his plans if the stock market were to become too upset with his prescribed course of treatment.

Either way, as it turns out, we’re starting to feel actual pinches-of-pain in the data itself. Last week’s marquee release — the Bureau of Labor Statistics’ non-farm payrolls report — was mostly fine.² There were clear signs of softness, such as a decline in the size of the labor force, a lower participation rate, and a slight rise in the unemployment rate itself. Other signs of stress included a big jump in the number of people who consider themselves ‘underemployed’ as well as another drop in temporary work (which, as far as I’m concerned, is great as a leading-edge indicator of the overall demand for labor).

There was also evidence that layoffs are picking up steam. Before Friday’s payroll report, we got February layoff data from outplacement firm Challenger, Gray and Christmas, whose data showed that U.S. employers cut more jobs in February than any single month since June of 2020 when the world was still reeling from COVID.³ Last month’s total includes more than 62,000 federal employees who were cut loose — the first real sign of DOGE-inspired cuts to show up in the data so far (at least in part because unlike other jobs data, Challenger data captures layoffs when they’re announced, not when they actually take place). On a year-to-date basis, there have been more cuts so far in 2025 than any other year since 2009’s glide into recession.

But the U.S. economy still created more than 150,000 new jobs last month — a better performance than the 40-year average prior to the pandemic would suggest if conditions were indeed dire. Besides, continued cooling of the labor market is probably still a good thing as long as it doesn’t get out of hand. That’s because the distortions wrought by COVID and the fiscal response to it were so profound that it has taken a long time for that tightness to unwind. Even more important is the simple fact that the current inflationary environment is unsettled enough such that any surge in wage growth that might accompany a return to tightness in labor would also likely re-ignite the inflation that got us in this mess in the first place.

So as far as labor markets are concerned, the phrase-that-pays is still “remain watchful.” If layoffs continue to accelerate with no offsetting increase in hiring, the risk of an out-of-control decline in jobs that tips the economy into recession will increase significantly, and that’s where the market’s focus seems to have turned recently. (Incidentally, though, one silver lining in the otherwise downbeat Challenger layoff report was evidence that hiring plans are recovering. That matters, because Challenger’s survey provided one of the earliest and most consistent signals of the ‘no-hire economy’ thesis that has now become commonplace).

But there was other evidence beyond labor markets that policy prescriptions are beginning to pinch, including last week’s quarterly results from retailers like Target, who warned that uncertainty is pressuring discretionary purchases by its customers and making it very hard to forecast. Meanwhile, warehouse giant (and perennial home of the Saturday morning free-sample festival) Costco was audacious enough to actually miss analyst estimates, while electronics retailer Best Buy had perhaps the most explicit take when its executives said they expect a 10% tariff against China to reduce sales by around 100 basis points and that the biggest impacts trade policy will land in their financials during the final nine months of 2025.

Tariffs also factored big in last week’s PMI and ISM data. These forward-looking reports were rife with suggestions that tariff proposals are already altering business behavior, like when S&P Global’s U.S. Manufacturing Purchasing Managers Index (PMI) noted “evidence of advance purchases” and, more troublingly, that “some suppliers were already adjusting their prices higher” in advance of expected tariffs.⁴ That was enough to drain most of the cheer out of an otherwise positive read on the state of the manufacturing sector, causing S&P to warn that “there’s much to suggest the improvement (in U.S. manufacturing) will be short-lived.”

Predictably, the current policy prescription is having side-effects elsewhere as well. For example, PMI data for manufacturers in both Canada and Mexico were released on the same day as the above-mentioned US manufacturing PMIs. Both showed significant signs of stress, with uncertainty causing sentiment among manufacturers both north- and south of the border to collapse. In Canada, the outlook for manufacturing “turned pessimistic for only the second time in survey history” (the first was in April 2020 when the world was literally first shut down,) while in Mexico companies are “maintaining minimal inventory levels and producing only that which is absolutely necessary” as they try to figure out what comes next.^5,6

Of course that might be the exact intent: Induce profound discomfort in the near-term in exchange for the promise of longer-term healing for a U.S. economy long distorted by a trade regime that some denounce as unfair, while simultaneously spreading that pain as widely as possible among our trading partners. Who’s to say whether these policies (which amount to sort of ‘chemotherapy for trade’, I suppose,) will ultimately prove effective — only history will judge their effectiveness with anything approaching objectivity.

But in the meantime, side effects may include nausea, sudden muscle weakness and disorientation. Better get used to it, I suppose...

What to watch this week

After last week’s big barf of jobs data, this week should be relatively quiet. The two scheduled releases with the most potential to move markets are consumer price (CPI) inflation on Tuesday and producer price (PPI) inflation on Thursday. It goes without saying that a big surge in inflation would cause markets to sit up and take notice, but it seems equally obvious that markets have moved past their obsession with prices and are now focused squarely on growth as the bigger risk to sentiment. The big question now is whether the Federal Reserve (the Fed) shares that view: The Fed’s rate-setting body is scheduled to meet next week, and while very few traders or economists think a cut will be on offer, the wording of the statement and the spin applied by Chairman Powell will get a lot of attention.

More on that next week. In the meantime, one left-over from last week’s labor data buffet is the Bureau of Labor Statistics’ Job Openings, Leaving, and Turnover Survey (more colloquially known as “JOLTS”), on Tuesday, is worth a look. I’ve recently downplayed the report’s headline figure (the estimated number of job openings across the economy) and instead directed your focus toward things like the quits rate (an important measure of how comfortable U.S. workers are in simply packing up their cubicles in boxes and leaving for greener pastures) and the conversion ratio (an estimate of how often each advertised job opening results in an actual hire.) These figures are still important, but the aggregate number of openings is suddenly relevant all over again, if only to confirm (or deny) the above-mentioned Challenger report’s suggestion that businesses are suddenly back in a hiring mood.

If so, that should also be evident in Tuesday’s small business sentiment report from the National Federation of Independent Businesses. We always try to watch that survey closely given the immense importance of the small business sector, but have increased our attention span since the November election. That’s because small businesses are particularly sensitive to the regulatory environment and have in the past displayed something of a partisan tilt. That made the big spike in survey results following November’s results somewhat predictable, but it also made last month’s setback something of a referendum on the animal spirits that have gripped markets and the economy since then. Watch closely for any kind of a reversion (or reversion to type,) in Tuesday’s numbers.

Finally, another area where animal spirits also appear to be waning is in consumer sentiment. The University of Michigan’s sentiment data — which will be updated on Friday — has joined other views of consumer attitudes in weakening considerably. That’s at least partially in response to fears surrounding tariffs and inflation, but increasingly also because of labor market weakness. The fickleness of the US consumer (not to mention attempts to measure it) makes it hard to rely too much on a month or two of data. But when several different views of consumer confidence are all pointing in the same direction as they are now, it risks becoming a trend. That’s especially true in the wake last week’s retail earnings results which, if you had to generalize, seemed to suggest that 2024 closed on a high note, but what’s likely to happen in 2025 is anyone’s guess. Watch Friday’s update on the U.S. consumer from the UofM for any evidence to the contrary.