Small businesses in the US reduced employment at the fastest rate since 2010, when the economy still was in recession, according to the May employment survey of Automatic Data Processing released on Wednesday.

ADP manages payrolls for 625,000 companies. Overall, the US economy added just 27,000 jobs during the month, the lowest count since 2010. The government’s payrolls report will come out on Friday, and may not capture the same data. The official report is skewed towards larger employers. The shocker in the ADP report was the 52,000 decline in employment at firms with 1-49 workers.

Trade uncertainty and the resulting postponement of capital spending appear to be taking a toll on the US economy, along with strains on consumer balance sheets. Retail sales are growing at just 1% a year in real terms.

I’ve argued for months that the US household sector is vulnerable to a squeeze, and the most recent data bear me out. This is not a good time to take economic risk in the stock or credit markets. I continue to recommend sticking to ultra-safe US investments (high-quality real estate investment trusts, consumer staples, and so forth).

As I have emphasized in past comments, a decline in average weekly hours worked by American employees signaled a slowing earlier this year. According to data compiled from 350,000 small businesses by Paychex, a division of the Markit organization, falling weekly hours have dragged down compensation. The chart below reproduced from the Paychex website shows the declining trend in weekly hours and weekly pay.

Although hourly earnings at small businesses are rising by 2.8% a year (light blue line), weekly earnings (dark blue line) are rising at the slower rate of 2.1% a year – roughly the rate of inflation. That’s because hours are down (orange line).

Purchasing managers’ surveys, usually the best forward-looking gauges available, for the most part, show an economy that barely is growing. The one divergence from the downward trend was today’s report by the National Association of Purchasing Managers of a slight uptick in the survey for US service providers.

The Markit survey, which claims to sample a larger number of companies, shows service-providing businesses barely above the 50 mark (almost as many are contracting as expanding).

Which survey is more accurate? The Markit survey appears more current than the NAPM survey. As the chart shows, earlier values of the Markit survey show a high correlation with later values of the NAPM survey. We only have three years of data for the Markit series, but the numbers show clearly that Markit provides more up-to-date information.

Morgan Stanley’s economists now warn that a recession is likely within three quarters. The New York Fed’s Nowcast model projects GDP growth of 1.48% for the second quarter while the Atlanta Fed’s GDPNow model reckons 1.3%. The Markit PMI’s and the ADP payroll report point to an even lower outcome.

In the short-term, the US stock market probably will continue to trade with the Mexican peso, as it did all week. Statistical analysis with 5-minute interval tick data shows clearly that the peso led the US stock market.

This is a surreal state of affairs. Under normal circumstances, the US stock market couldn’t care less what happens to the monetary unit of America’s southern neighbor. But the peso is a proxy for the overall state of policy-making at the Trump White House, which made an impulsive decision to apply emergency powers to a purpose for which tariffs never before were used.

This entails far more than America’s $300 billion a year in imports from Mexico, including $40 billion of components for the auto industry. As I noted previously (and many others have as well), the imposition of tariffs on Mexico while a laboriously-negotiated trade treaty is under consideration by the US Congress is a warning to the world that no deal with the United States is reliable.

With Senate Republicans threatening to overturn the Mexican tariffs – the legalities of the emergency legislation are unclear – and several of Trump’s top trade advisers opposing the measure, investors are guardedly optimistic that Trump will back away from the ledge. The peso is trading a bit stronger and US equities have followed.

Assuming that the Trump Administration backs off from the tariffs with a face-saving deal with Mexico, the market will have the unpleasant task of sifting through the economic data for signs of recovery.

The consensus estimate for the May payrolls report calls for a gain of 175,000 jobs. I predict that the result will be only 75,000. At some point, President Trump will stop believing his own rhetoric about the strength of the US economy and try to regroup. The question is how much glass will have to be unbroken to revive growth.