Tariffs, layoffs, and weak growth—the US economy faces a storm, and it’s just getting started
It’s a bit surreal to see the 10-year yield sitting where it is right now. Just a few weeks ago, we were racing toward 5%, and now it’s way lower. The bond market is telling us a pretty clear story, though—inflation is no longer the top worry. Sure, tariffs are coming, and they’ll add inflationary pressure, but it seems the market’s focus has shifted to something far darker: recession risk. US companies are already laying off workers across various sectors, signaling that businesses are bracing for an economic slowdown.
The numbers are already telling a troubling tale. In early February, the Labor Department’s JOLTS report showed a decline of 1.3 million job openings by the end of December. That sounds like a lot, but what’s even more telling is that vacancies are still above pre-pandemic levels, meaning the labor market is cooling, but it’s not crashing. Still, companies are responding by tightening belts—layoffs are happening, even in industries that were once seen as “safe.” The signs of weakening are all over the place, and it’s only a matter of time before the effects trickle down into consumer behavior.
Target, a key player in the retail sector, has already warned of a “meaningful” drop in Q1 profits due to soft sales and an uncertain consumer environment. They’re facing all the usual suspects—inflation, tariffs, and a shifting economic landscape. But what’s perhaps most concerning is the broader trend of companies cutting costs to deal with an uncertain future. And while some of this is typical of any economic downturn, the fact that it’s happening now—after a period of massive government spending and stimulus—is worrisome.
This isn’t just about inflation. It’s about growth—or the lack thereof. Scott Bessent’s remarks about the “real” US economy being weak under the surface are spot-on. The private sector, the true engine of growth, has been barely moving for years. We’ve been propped up by unsustainable fiscal policies and borrowing. The government’s debt binge has kept the headline economy from completely tanking, but the cracks are starting to show. The reality is, if the deficit starts to shrink, so will GDP. We’re heading into dangerous territory, and the bond market is picking up on it.
Then there’s the issue of tariffs. Bessent nails it when he says tariffs act like a regressive sales tax, hitting the lower 50% hardest. And the worst part? We haven’t even seen the full impact yet. Retaliatory tariffs will only add to the pain, and that’s before factoring in the slowdown in demand. The front-running of orders to avoid tariffs is over, and the deflationary pressures will start to hit soon. Expect prices to fall in the coming reports, especially as the demand reversal takes hold.
We’re staring down the barrel of a potential recession, and the question is whether or not we can avoid the kind of stagflation we saw in the 1970s. Bessent’s prediction about a sharp decline in disposable income seems like a foregone conclusion at this point. And the wild card? President Trump’s push for QE. While it may seem like a natural response to the coming slowdown, there’s a serious risk that rushing to cut rates could trap us in higher inflation for the long haul. Trump’s “growth at all costs” mentality might just exacerbate the problem, pushing us further down the road to stagflation.
We’re entering a period where disinflation and even deflation are almost inevitable in certain sectors, particularly housing. The issue is that this only happens in recessions, and we’re already starting to see the signs. Trump’s eagerness to get rates down could mean a bumpy ride ahead. If history is any guide, it’s during these times of economic turmoil that the cracks in the system become too large to ignore.
Sources:
https://x.com/StealthQE4/status/1896686532125417866
https://x.com/KobeissiLetter/status/1896973647333704140
https://www.reuters.com/business/factbox-us-companies-announce-layoffs-cut-costs-2025-02-26/
https://x.com/StockMKTNewz/status/1896886796413509664
https://x.com/KobeissiLetter/status/1896904960765567017
https://x.com/Geiger_Capital/status/1896604981081547195
https://x.com/LanceRoberts/status/1896889922415686116