Evelyn Reynolds

Private companies added just 77,000 new workers for the month, well off the upwardly revised 186,000 in January and below the 148,000 estimate, ADP reported.
The report reflected tariff concerns, as a sector that lumps together trade, transportation and utility jobs saw a loss of 33,000 positions.
On the positive side, leisure and hospitality jobs jumped by 41,000, while professional and business services added 27,000 and financial activities and construction both saw gains of 25,000.

A person exits a Home Depot store in Midtown Manhattan on February 26, 2025 in New York City. 
Eduardo Munoz Alvarez | Corbis News | Getty Images

Private sector job creation slowed to a crawl in February, fueling concerns of an economic slowdown, payrolls processing firm ADP reported Wednesday.
Companies added just 77,000 new workers for the month, well off the upwardly revised 186,000 in January and below the 148,000 Dow Jones consensus estimate, according to seasonally adjusted figures from ADP.

The total was the smallest increase since July and comes at a time when worries are rising that economic growth is slowing and worries brew that President Donald Trump’s tariff plans will spark another round of inflation. ADP said annual pay rose 4.7% in February, the same as the prior month.
“Policy uncertainty and a slowdown in consumer spending might have led to layoffs or a slowdown in hiring last month,” said ADP chief economist Nela Richardson. “Our data, combined with other recent indicators, suggests a hiring hesitancy among employers as they assess the economic climate ahead.”
Though most economic data points remain positive, sentiment indicators have shown rising fears among both business executives and consumers that the Trump tariffs could raise prices and slow growth. In the extreme scenario, the combination could cause stagflation, a condition of flat or negative growth and rising prices.
The ADP report reflected some of those concerns, as a sector that lumps together trade, transportation and utility jobs saw a loss of 33,000 positions. Education and health services reported a decline of 28,000, while information services decreased by 14,000 at a time of uncertainty for artificial intelligence-related companies, despite Trump’s commitment to advancing AI efforts.
On the positive side, leisure and hospitality jobs jumped by 41,000, while professional and business services added 27,000 and financial activities and construction both saw gains of 25,000. Manufacturing also reported an increase of 18,000, countering the ISM manufacturing survey for the month that indicated companies were pulling back on hiring.

Services and goods-producing were in unusual balance for the month, adding 36,000 and 42,000 respectively on the month. As the U.S. is a services-based economy, that side usually dominates in job creation.
Employment growth tilted towards large firms in February, with companies employing 500 or more workers reporting a gain of 37,000 while those with fewer than 50 employees saw a loss of 12,000.
The ADP count serves as a precursor to the Labor Department’s Bureau of Labor Statistics report on nonfarm payrolls, due Friday. However, the two reports can differ substantially due to different methodologies. In January, the BLS reported an increase of just 111,000 in private payrolls, well below the ADP count.
Economists surveyed by Dow Jones expect Friday’s report to show job gains of 170,000 and an unemployment rate steady at 4%. More

Germany’s prospective fiscal U-turn could prove transformational for the country’s struggling economy and European defense.
Leaders of the likely incoming coalition government on Tuesday announced plans to reform the debt brake and create a special investment fund.
Market reaction has widely been positive, with economists and analysts describing the move as ‘historic’ and a ‘game changer.’

Markus Söder (l-r), Chairman of the CSU and Minister President of Bavaria, Friedrich Merz, candidate for Chancellor of the CDU/CSU, Chairman of the CDU/CSU parliamentary group and Federal Chairman of the CDU, Lars Klingbeil, Chairman of the SPD parliamentary group and Federal Chairman of the SPD, and Saskia Esken, Party Chairwoman of the SPD, hold a press conference on the exploratory talks between the CDU/CSU and the SPD.
Kay Nietfeld/dpa | Picture Alliance | Getty Images

Germany’s prospective fiscal U-turn could prove transformational for the country’s struggling economy and for European defense — but Berlin lawmakers don’t have much time to make the historic shift happen.
Fiscal and economic policies were seen as highly contentious during Germany’s previous ruling coalition and contributed to its eventual break-up at the end of last year. Amid ongoing negotiations for a new governing alliance, the Christian Democratic Union and its Christian Social Union affiliate — which led in the February polls — and the Social Democratic Party appear to have achieved something of a breakthrough.

On Tuesday, likely-to-be chancellor Friedrich Merz and other political leaders announced plans to reform the long standing fiscal pillar known as Germany’s debt brake, specifically to allow for higher defense spending. They also revealed a new 500 billion euros ($535 billion) special fund for infrastructure.
Materializing these plans will mean changes to the German constitution, which requires the support of a two-thirds majority in parliament. This would likely work at present — but would be very difficult to achieve once the newly elected parliament representatives come together for the first time later this month.
A vote on the constitutional tweaks could therefore be pushed through within the week.

‘Big, bold, unexpected — a game changer’

“Big, bold, unexpected – a game changer for the outlook,” Bank of America Global Research economists and analysts said in a Wednesday note, adding that the package “meaningfully” changed the outlook for Germany’s economy.
For a couple of years now, Germany’s economy has been sluggishly teetering on the edge of a technical recession, defined as two consecutive quarters of gross domestic product declines. The national GDP has been alternating between expansion and contraction in each quarter throughout 2023 and 2024.

The country is facing a wide range of issues, including infrastructure problems, a struggling housebuilding sector and pressure on some of the industries that have historically strongly contributed to its growth, such as autos.
There is now hope for change. The planned special investment vehicle could benefit the country’s economy, experts believe.
Markets can expect an economic boost and Germany’s growth estimates could likely be increased, Florian Schuster-Johnson, senior economist at Dezernat Zukunft, told CNBC’s “Street Signs Europe” on Wednesday.
“I think in the short term this will just boost domestic demand obviously because there will be a lot of demand for people building these new infrastructures and companies that [are] getting new government orders now,” he said.
Higher defense spending could also have a long-term effect on the economy, leading to increased production capacities that could eventually also come into civil use, Schuster-Johnson added.
It could push Germany above the current NATO target of spending 2% of GDP on defense, Deutsche Bank Research economists said Tuesday.
“Tonight’s robust rhetoric implies that the open-ended borrowing room for defence will be used at a pace that could bring German defence spending to at least 3% perhaps as early as next year,” they said.
Merz suggested that geopolitical developments showed that major measures need to be taken to strengthen Germany’s and Europe’s security and defense capabilities.
“In light of the threats to our freedom and peace on our continent, ‘whatever it takes’ now also needs to apply to our defense,” he added, according to a CNBC translation.
While the policy announcements would largely be beneficial, other fiscal and budget plans from the likely new coalition are still to come and could have their own impact on Germany’s economy, ING’s global head of macro Carsten Brzeski noted.
“We wouldn’t rule out that the official coalition talks will still bring some expenditure cuts, which would lower the positive impact of the announced fiscal stimulus,” he said.

Policy details

Going over the details, the 500 billion euro special investment fund will not be part of the federal budget, but it will be financed through credit without contributing to new debt. The funds are set to be used over 10 years, focusing on transport, energy, education, civil protection and other infrastructure. Federal states will also be allocated some of the funds to support their finances.
To avoid the cash being subject to the debt brake, the fund will be rooted in the constitution and exempted from the fiscal rule.
As it stands, the debt brake limits how much debt the government can take on, and dictates that the size of the federal government’s structural budget deficit must not exceed 0.35% of the country’s annual GDP.
One key change under the new plan is that defense spending that goes beyond 1% of Germany’s GDP will not be counted towards the debt brake cap, meaning that such expenses will no longer be limited.
Germany’s states will also be allowed to take on more debt than previously, and long-term proposals to modernize the debt brake and strengthen investments will also be undertaken.
The proposed debt brake overhaul also mark a major shift from the CDU-CSU’s election campaign, during which the parties repeatedly positioned themselves as wanting to stick with the Angela Merkel-era rule. Merz eventually suggested he may be open to some reform.

Market reaction

The plans have sparked a widespread market reaction, with the German DAX jumping 3.4% by 12:51 p.m. London time, as German companies led the pan-European Stoxx 600 higher. Construction and manufacturing firms notched significant gains, as did German lenders.
German borrowing costs soared. The yield on German 10-year bonds, which are seen as the euro zone benchmark, were last up by over 25 basis points, and the 2-year yield spiked by more than 16 basis points.
Dezernat Zukunft’s Schuster-Johnson told CNBC the market reaction suggested surprise at the pace and magnitude of the proposed changes.
“The bottom line is Germany is back and Germany is funded,” he said. “This move we’ve seen last night is really remarkable. you know Germans sometimes move late and sometimes delayed when big steps are needed however this is a big step and when they take it they do it so very radically.” More

Markets have priced in a quarter-point rate cut from the European Central Bank on Thursday and another half-point in cuts by the end of the year.
However, with the hotly-debated “neutral level” in view and a host of economic and geopolitical uncertainties, disagreement among policymakers may increase from here.

The European Central Bank is expected to cut interest rates for the second time this year at its Thursday meeting, but disagreement among policymakers may be set to increase amid tariff uncertainty and a potential ramp-up in regional defense spending.
Markets had on Wednesday fully priced in a quarter-point rate cut for the March meeting, taking the ECB’s key rate to 2.5% — down from its peak of 4% in the middle of last year. A further reduction to 2% by the end of the year was also priced in.

A relatively swift pace of monetary easing has been expected over the last nine months, with euro zone headline inflation coming in consistently below 3%, and economic growth remaining weak. The ECB’s Governing Council has almost always made its decisions unanimously and provided relatively firm guidance of its next steps to guide market expectations.
However, the central bank now appears within touching distance of the hotly-debated “neutral rate” at which policy is neither stimulating nor restricting the economy, when rates would be expected to be kept on hold. Policymakers disagree on exactly where this level is, and whether rates might need to be brought even lower than that level in response to factors such as low growth.
ECB President Christine Lagarde told CNBC in January she believed the range was between 1.75% and 2.25%, down from her previous estimate of between 1.75% and 2.5% — but the ECB itself has not issued a firmer indication since.
Bank of America Global Research analysts said in a Wednesday note that following this week’s meeting they expected increased internal dispute between policymakers.
“This is the last ‘easy’ rate cut in our views, as disagreements grow,” they said. However, they reiterated a view ahead of market expectations for the ECB to slash rates to 1.5% by September.

“The debate among ECB policymakers has picked up over recent weeks,” noted Goldman Sachs analysts, who said they expected the voting Governing Council to focus on whether broad financial conditions, bank lending conditions, business reports and lending indicate rates are still restrictive.

Spending hike

The outlook is meanwhile clouded by a host of factors causing a stir in markets and the economy. The ECB staff macroeconomic projections on inflation and growth that will be released Thursday will therefore be closely-watched, but may be taken with a pinch of salt.
The U.S. has launched tariffs on its biggest trading partners which are expected to cause a slowdown in global sectors including automotives — but the duties might yet be pared back. U.S. President Donald Trump has said the European Union will be next in-line for high duties — however, the prospect of a negotiation also remains in play. The impact of such tariffs would also be uncertain, with a slowdown in trade dragging on economic activity, but also potentially weighing on the euro, raising the cost of imports.
European governments are meanwhile gearing up to hike spending on defense as relations with the U.S. over the Ukraine war fracture.
Lagarde is likely to be questioned on the potential impact of the deal announced this week in Germany between the country’s expected next coalition partners. An agreement on reforming German debt rules has not yet been finalized, but is expected to unlock up to a trillion euros in spending on defense and infrastructure, with the euro sharply rallying on the news Wednesday.

Analysts at Rabobank said euro gains were “in part due to expectations that room for further ECB rates cuts will be more confined,” with the reforms and higher spending bringing the “promise of an uplift in economic growth.”
A broader move toward European rearmament would represent “a debt-financed fiscal expansion that would spur economic activity, allow some reflation, and cause the ECB to reconsider the extent of its policy rate cuts going forward,” Thierry Wizman, global FX and rates strategist at Macquarie, said Tuesday.

Still restrictive?

Despite all of this uncertainty, some analysts do not expect the ECB to significantly update its guidance on Thursday, which in January stressed that inflation was expected to converge toward target, monetary policy remains restrictive, and that the central bank will continue its data-dependent approach.
A particular focus will be on whether it alters the message that policy is “restrictive,” and whether there is a suggestion that a rate hold may be coming at the next meeting in April.
“Given the unusual uncertainty created by the ongoing political and geopolitical developments, we expect the Governing Council of the ECB to be driven this week by a desire to maximise optionality about subsequent moves,” Citi analysts said Wednesday.
“We think this may translate into a more cautious communication, no longer asserting that monetary policy is restrictive. We would not read this as a sign that a pause in the easing process is forthcoming, however. Shifting geopolitics may eventually generate reflationary fiscal policies, but in the near term, they will likely increase the argument for monetary easing.” More

An EY survey of 4,000 executives found that half said they would be willing to pass on up to two-thirds of the added costs from tariffs onto their consumers.
President Donald Trump’s 25% tariffs on Canada and Mexico, along with an additional 10% duty on China, kicked in on Tuesday.
“Businesses today, they don’t care about whether the tariffs are coming tomorrow or in a week – they’re preparing [and] trying to build resilience,” said Gregory Daco, chief economist at EY-Parthenon.

People shop in a supermarket in the Manhattan borough of New York City on Feb. 20, 2025.
Charly Triballeau | AFP | Getty Images

Consumers are certain to face higher sticker prices as businesses prepare to pass on rising costs from tariffs onto buyers, according to EY-Parthenon chief economist Gregory Daco.
In an EY survey of 4,000 executives, nearly half said that they were willing to pass on two-thirds of the added costs from tariffs onto their customers. More than 3 in 10 participants were willing to take it a step further and pass over 90% of the additional expense to shoppers, the poll found.

The observations from the executives come as President Donald Trump’s 25% tariffs on Canada and Mexico took effect on Tuesday, along with an additional 10% duty on imports from China.
Target CEO Brian Cornell recently said that the tariffs on Mexican goods will likely lead to higher prices on produce.
The pace of the current trade war under the second Trump administration has been surprising and “much faster than we had previously seen,” Daco told CNBC. 
The economist’s baseline estimates project tariffs will have a “notable shock” of reducing U.S. gross domestic product by 0.6%, with the assumption of 20% duties on China and an average of 3% tariffs on the rest of the world.
However, “our initial baseline was actually that tariffs would be implemented later,” Daco said.

Even if the Trump administration’s tariffs only last for a short term and are quickly lifted, uncertainty will continue to erode on business confidence — and prices can’t move at the same pace. 
“Businesses today, they don’t care about whether the tariffs are coming tomorrow or in a week — they’re preparing [and] trying to build resilience,” through methods such as increasing inventories and looking toward different supply chains and alternatives, Daco said.
“But doing that has a cost and is inflationary in and of itself. Uncertainty deters economic activity,” he added. 
Specific, targeted tariffs “are extremely painful at the sector level,” but their effects take more time to filter through to consumers, Daco said. Auto, construction and steel producers likely have some inventory currently on hand before they increase costs on consumers, he added.
“So consumers are not going to see, necessarily, the full impact overnight — but very rapidly, they will see auto prices go up — a fridge, building a home, and other things that are going on,” Daco said.
Even if tariffs are quickly lifted, he forecasts higher price levels remaining sticky.
“It’s true that tariffs could be pulled back…. That does not mean that there’s no negative,” said Daco. More

A growth scare in the economy has accompanied worries over a resurgence in inflation, threatening to potentially rekindle stagflation.
The phenomenon, not seen since the dark days of hyperinflation and sagging growth in the 1970s and early ’80s, has primarily manifested itself lately in “soft” data.
The converging factors are causing waves on Wall Street, where stocks have been been in sell-off mode this month, erasing the gains since Trump’s election in November.

Traders work on the floor of the New York Stock Exchange (NYSE) in the Financial District in New York City on March 4, 2025. 
Timothy A. Clary | Afp | Getty Images

A growth scare in the economy has accompanied worries over a resurgence in inflation, in turn potentially rekindling an ugly condition that the U.S. has not seen in 50 years.
Fears over “stagflation” have come as President Donald Trump seems determined to slap tariffs on virtually anything that comes into the country at the same time that multiple indicators are pointing to a pullback in activity.

That dual threat of higher prices and slower growth is causing angst among consumers, business leaders and policymakers, not to mention investors who have been dumping stocks and scooping up bonds lately.
“Directionally, it is stagflation,” said Mark Zandi, chief economist at Moody’s Analytics. “It’s higher inflation and weaker economic growth that is the result of policy — tariff policy and immigration policy.”
The phenomenon, not seen since the dark days of hyperinflation and sagging growth in the 1970s and early ’80s, has primarily manifested itself lately in “soft” data such as sentiment surveys and supply manager indexes.
At least among consumers, long-run inflation expectations are at their highest level in almost 30 years while general sentiment is seeing multi-year lows. Consumer spending fell in January by its most in nearly four years, even though income rose sharply, according to a Commerce Department report Friday.
On Monday, the Institute for Supply Manufacturing’s survey of purchase managers showed that factory activity barely expanded in February while new orders fell by the most in nearly five years and prices jumped by the highest monthly margin in more than a year.

Following the ISM report, the Atlanta Federal Reserve’s GDPNow gauge of rolling economic data downgraded its projection for first quarter economic growth to an annualized decrease of 2.8%. If that holds up, it would be the first negative growth number since the first quarter of 2022 and the worst plunge since the Covid shutdown in early 2020.
“Inflation expectations are up. People are nervous and uncertain about growth,” Zandi said. “Directionally, we’re moving toward stagflation, but we’re not going to get anywhere close to the stagflation we had in the ’70s and the ’80s because the Fed won’t allow it.”
Indeed, markets are pricing in a greater chance the Fed will start cutting interest rates in June and could lop three-quarters of a percentage point off its key borrowing rate this year as a way to head off any economic slowdown.
But Zandi thinks the Fed reaction might do just the opposite — raise rates to shut down inflation, in the vein of former Chair Paul Volcker, who aggressively hiked in the early ’80s and dragged the economy into recession. “If it looks like true stagflation with slow growth, they will sacrifice the economy,” he said.

Read more CNBC tariffs coverage

Sell-off in stocks
The converging factors are causing waves on Wall Street, where stocks have been been in sell-off mode this month, erasing the gains that were made after Trump won election in November.
Though the Dow Jones Industrial Average fell again Tuesday and is off about 4.5% through the early days of March, the selling hasn’t felt especially rushed and the CBOE Volatility Index, a gauge of market fear, was only around 23 Tuesday afternoon, not much above its long-term average. Markets were well off their session lows in afternoon trading.
“This certainly isn’t the time to hit the panic button,” said Mark Hackett, chief market strategist at Nationwide. “At this point, I’m still in the camp that this is a healthy resetting of expectations.”
However, it’s not just stocks that are showing signs of fear.
Treasury yields have been tumbling in recent days after surging since September. The benchmark 10-year note yield has fallen to about 4.2%, off about half a percentage point from its January peak and below the 3-month note, a reliable recession indicator going back to World War II called an inverted yield curve. Yields move opposite to price, so falling yields indicate greater investor appetite for fixed income securities.

Stock chart icon

10-year Treasury yield in 2025.

Hackett said he fears a “vicious circle” of activity created by the swooning sentiment indicators that could turn into a full-blown crisis. Economists and business executives see the tariffs hitting prices for food, vehicles, electricity and an assortment of other items.
Stagflation “certainly is something to pay attention to now, more than it’s been in a while,” he said. “We have to watch. This is such a collapse in sentiment and such a change in the way people are viewing things and the level of emotion is so elevated right now that it will start impacting behavior.”
White House sees ‘the greatest America’
For their part, White House officials are maintaining that short-term pain will be dwarfed by the long-term benefits tariffs will bring. Trump has touted the duties as way to create a stronger manufacturing base in the U.S., which is primarily a service-based economy.
Commerce Secretary Howard Lutnick acknowledged in a CNBC interview Tuesday that there “may well be short-term price movements. But in the long term, it’s going to be completely different.” Market-based inflation expectations are in line with that sentiment. One metric, which measures the spread between nominal 5-year Treasury yields against inflation, is at its lowest level in nearly two years.
“This is going to be the greatest America. We’ll have a balanced budget. Interest rates will come smashing down, and I mean 100 basis points, 150 basis points lower,” Lutnick added. “This president is going to deliver all of those things and drive manufacturing here.”
Likewise, Treasury Secretary Scott Bessent told Fox News that “there’s going to be a transition period” and said the administration’s focus is on Main Street more than Wall Street.
“Wall Street’s done great. Wall Street can continue to do fine, but we have a focus on small business and the consumer,” he said. ” We are going to rebalance the economy, we are going to bring manufacturing jobs home.”
Important clues on where the economy is headed should come from Friday’s nonfarm payrolls report. If the jobs count is good, it could reinforce the notion that the hard data has remained solid even as sentiment has shifted.
But if the report shows that the labor market is softening while wages are holding higher, that could add to the stagflation chatter.
“We have to be observant. There’s the potential that the stagflation term just by itself, by talking about it, can manifest some of it,” said Hackett, the Nationwide strategist. “I’m not in the we-are-in-a-period-of-stagnation camp, but that is the disaster scenario.” More