It’s Trump’s economy in the US—and warning lights are flashing

For all of President Donald Trump's promises of an economic “golden age”, a spate of weak indicators this week told a potentially worrisome story as the impacts of his policies are coming into focus.

Job gains are dwindling. Inflation is ticking upward. Growth has slowed compared to last year.

More than six months into his term, Trump's blitz of tariff hikes and his new tax and spending bill have remodelled America's trading, manufacturing, energy and tax systems to his own liking. He's eager to take credit for any wins that might occur and is hunting for someone else to blame if the financial situation starts to totter.

But as of now, this is not the boom the Republican president promised, and his ability to blame his Democratic predecessor Joe Biden for any economic challenges has faded, as the world economy hangs on his every word and social media post.

When 1 August, Friday’s jobs report turned out to be decidedly bleak, Trump ignored the warnings in the data and fired the head of the agency that produces the monthly jobs figures.

“Important numbers like this must be fair and accurate, they can't be manipulated for political purposes,” Trump said on Truth Social, without offering evidence for his claim. “The Economy is BOOMING.”

It's possible that the disappointing numbers are growing pains from the rapid transformation caused by Trump and that stronger growth will return — or they may be a preview of even more disruption to come.

Trump's economic plans are a political gamble

Trump's aggressive use of tariffs, executive actions, spending cuts and tax code changes carries significant political risk if he is unable to deliver middle-class prosperity. The effects of his new tariffs are still several months away from rippling through the economy, right as many Trump allies in Congress will be campaigning in the mid-term elections.

“Considering how early we are in his term, Trump's had an unusually big impact on the economy already,” said Alex Conant, a Republican strategist at Firehouse Strategies. “The full inflationary impact of the tariffs won't be felt until 2026. Unfortunately for Republicans, that's also an election year.”

The White House portrayed the blitz of trade frameworks leading up to 21 July, Thursday's tariff announcement as proof of his negotiating prowess.

The European Union, Japan, South Korea, the Philippines, Indonesia and other nations that the White House declined to name agreed that the US could increase its tariffs on their goods without doing the same to American products. Trump simply set rates on other countries that lacked settlements.

The costs of those tariffs — taxes paid on imports to the US — will be most felt by many Americans in the form of higher prices, but to what extent remains uncertain.

“For the White House and their allies, a key part of managing the expectations and politics of the Trump economy is maintaining vigilance when it comes to public perceptions,” said Kevin Madden, a Republican strategist.

Just 38 per cent of adults approve of Trump's handling of the economy, according to a July poll by the Associated Press-NORC Center for Public Affairs. That's down from the end of Trump's first term, when half of adults approved of his economic leadership.

The White House paints a rosier image, seeing the economy as emerging from a period of uncertainty after Trump's restructuring and repeating the economic gains seen in his first term before the pandemic struck.

“President Trump is implementing the very same policy mix of deregulation, fairer trade, and pro-growth tax cuts at an even bigger scale — as these policies take effect, the best is yet to come,” White House spokesman Kush Desai said.

Recent economic reports suggest trouble ahead

The economic numbers over the past week show the difficulties that Trump might face if the numbers continue on their current path:

• August 1, Friday's jobs report showed that US employers have shed 37,000 manufacturing jobs since Trump's tariff launch in April, undermining prior White House claims of a factory revival.

• Net hiring has plummeted over the past three months, with job gains of just 73,000 in July, 14,000 in June and 19,000 in May — a combined 258,000 jobs lower than previously indicated. On average last year, the economy added 168,000 jobs a month.

• A 31 July, Thursday, inflation report showed that prices have risen 2.6 per cent over the year that ended in June, an increase in the personal consumption expenditures price index from 2.2 per cent in April. Prices of heavily imported items, such as appliances, furniture, and toys and games, jumped from May to June.

• On 30 july, Wednesday, a report on the gross domestic product (GDP) — the broadest measure of the US economy — showed that it grew at an annual rate of less than 1.3 per cent during the first half of the year, down sharply from 2.8 per cent growth last year.

“The economy's just kind of slogging forward,” said Guy Berger, senior fellow at the Burning Glass Institute, which studies employment trends. “Yes, the unemployment rate's not going up, but we're adding very few jobs. The economy's been growing very slowly. It just looks like a meh' economy is continuing.”

Trump's Fed attacks could unleash more inflation

Trump has sought to pin the blame for any economic troubles on Federal Reserve chair Jerome Powell, saying the Fed should cut its benchmark interest rates — even though doing so could generate more inflation.

Trump has publicly backed two Fed governors, Christoper Waller and Michelle Bowman, for voting for rate cuts at Wednesday's meeting. But their logic is not what the president wants to hear: They were worried, in part, about a slowing job market.

But this is a major economic gamble being undertaken by Trump and those pushing for lower rates under the belief that mortgages will also become more affordable as a result and boost home-buying activity.

His tariff policy has changed repeatedly over the last six months, with the latest import tax numbers serving as a substitute for what the president announced in April, which provoked a stock market sell-off. It might not be a simple one-time adjustment, as some Fed board members and Trump administration officials argue.

Trump didn't listen to the warnings on universal' tariffs

Of course, Trump can't say no one warned him about the possible consequences of his economic policies.

Biden, then the outgoing president, did just that in a speech last December at the Brookings Institution, saying the cost of the tariffs would eventually hit American workers and businesses.

“He seems determined to impose steep, universal tariffs on all imported goods brought into this country on the mistaken belief that foreign countries will bear the cost of those tariffs rather than the American consumer,” Biden said. “I believe this approach is a major mistake.”

And indeed, hiring is slowing sharply as President Donald Trump's erratic and radical trade policies paralyse businesses and raise doubts about the outlook for the world's largest economy.

US employers added just 73,000 jobs last month, the labour department reported on Friday, well short of the 115,000 expected.

Worse, revisions shaved a stunning 258,000 jobs off May and June payrolls. And the unemployment rate ticked higher to 4.2 per cent, as Americans dropped out of the labour force and the ranks of the unemployed rose by 221,000.

“A notable deterioration in US labour market conditions appears to be underway,'' said Scott Anderson, chief US economist at BMO Capital Markets. ”We have been forecasting this since the tariff and trade war erupted this spring, and more restrictive immigration restrictions were put in place. Overall, this report highlights the risk of a harder landing for the labour market.''

Economists have been warning that the rift with every US trading partner will begin to appear this summer, and the Friday jobs report appeared to sound the bell.

“We're finally in the eye of the hurricane,” said Daniel Zhao, chief economist at Glassdoor. “After months of warning signs, the July jobs report confirms that the slowdown isn't just approaching — it's here.”

US markets recoiled at the jobs report, and the Dow tumbled by more than 600 points on Friday.

But President Donald Trump responded to the weak report by calling for the firing of Erika McEntarfer, the director of the laboor department's Bureau of Labor Statistics, which compiles the jobs numbers. “I have directed my Team to fire this Biden Political Appointee, IMMEDIATELY,” Trump said on Truth Social. “She will be replaced with someone much more competent and qualified.”

Trump questioned the big revisions, but they are a standard part of the monthly jobs report. The labour department revises its numbers as more data comes in. Particularly since Covid-19, businesses have taken longer to respond to the government's survey on hiring. As more data has come in later than in the past, the potential for large revisions has increased.

Revelations in the new data raise questions about the health of the job market and the economy as Trump pushes forward an unorthodox overhaul of American trade policy.

Trump has discarded decades of US efforts to lower trade barriers globally, instead imposing hefty import taxes — tariffs — on products from almost every country on earth. Trump believes the levies will bring manufacturing back to America and raise money to pay for the massive tax cuts he signed into law on 4 July.

Mainstream economists warned that the cost of the tariffs will be passed along to Americans, both businesses and households.

That has begun.

Walmart, Procter & Gamble, Ford, Best Buy, Adidas, Nike, Mattel, Shein, Temu, Stanley Black & Decker, have all hiked prices due to US tariffs. Economists at Goldman Sachs estimate that overseas exporters have absorbed just one-fifth of the rising costs from tariffs, while Americans and US businesses have picked up the lion's share of the tab.

Trump has sown uncertainty in the erratic way he's rolled the tariffs out — announcing, then suspending them, then coming up with new ones. Overnight, Trump signed an executive order that set new tariffs on a wide swath of US trading partners that go into effect on 7 August, and that comes after a flurry of unexpected tariff-related actions this week.

“There was a clear, significant, immediate tariff effect on the labour market and employment growth essentially stalled, as we were dealing with so much uncertainty about the outlook for the economy and for tariffs,” said Blerina Uruci, chief U.S. economist for the brokerage T. Rowe Price.

Still, Uruci said the data suggests we could be past the worst, as hiring actually did pick up a bit in July from May and June's depressed levels.

“I'm not overly pessimistic on the US economy based on this morning's data,” she said, though she does think that hiring will remain muted in the coming months as the number of available workers remains limited due to reduced immigration and an ageing population.

“Because of immigration policy, labour supply growth has nearly ground to a halt,” said Guy Berger, senior fellow at the Burning Glass Institute, which studies employment trends. “So we're going to have very weak employment growth. And we look like southern Europe or Japan.”

Still, with fewer workers available, the economy doesn't need to generate many jobs to soak up the unemployed. That could keep the unemployment rate from climbing much, Berger added.

Trump has sold the tariff hikes as a way to boost American manufacturing, but factories cut 11,000 jobs last month after shedding 15,000 in June and 11,000 in May. The federal government, where employment has been targeted by the Trump administration, lost 12,000 jobs. Jobs in administration and support fell by nearly 20,000.

Healthcare companies added 55,400 jobs last month — accounting for 76 per cent of the jobs added in July and offering another sign that recent job gains have been narrowly concentrated.

The department originally reported that state and local governments had added 64,000 education jobs in June. The revisions on Friday slashed those jobs to less than 10,000.

Those revisions also revealed that the US economy has generated an average of just 85,000 jobs a month this year, barely half last year's average of 168,000 and well below an average of 400,000 from 2021–23 as the economy rebounded from Covid-19 lockdowns.

The weak jobs data makes it more likely that Trump will get one thing that he most fervently desires: A cut in short-term interest rates by the Federal Reserve, which often — though not always — can lead to lower rates for mortgages, car loans, and credit cards.

Fed chair Jerome Powell and other Fed officials have repeatedly pointed to a healthy job market as a reason that they could take time to evaluate how Trump's tariffs were affecting inflation and the broader economy. Now that the assessment has been undercut, it will put more pressure on the Fed to reduce borrowing costs.

Wall Street investors sharply raised their expectations for a rate cut at the Fed's next meeting in September after the report was released.

On Wednesday, the Fed left its key rate unchanged for the fifth consecutive meeting and Powell signalled little urgency to reduce rates anytime soon. He said the “labour market is solid” with “historically low unemployment.” But he also acknowledged there is a “downside risk” to employment stemming from the slow pace of hiring that was evident even before Friday's weaker numbers.

The current situation is a sharp reversal from the hiring boom of just three years ago, when desperate employers were handing out signing bonuses and introducing perks such as Fridays off, fertility benefits and even pet insurance to recruit and keep workers.

The rate of people quitting their jobs — a sign they're confident they can land something better — has fallen from the record heights of 2021 and 2022 and is now weaker than before the pandemic.

Drees Homes, a homebuilder based outside Cincinnati in Fort Mitchell, Kentucky, has hired about 50 people over the past year, bringing its workforce to around 950. Pamela Rader, Drees' vice president for human resources, it's “gotten a little bit easier'' to find workers.

A couple of years ago, Rader said jobseekers were focused on getting more pay. Now, she said, they emphasise stable employment, a better work-life balance, and prospects for advancement.