August 1, 2025
When Trump talks of turning the economic system round, he speaks the reality—he simply will get the path of change fallacious.
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Donald Trump reveals his signature on the “Huge Lovely Invoice Act” on the White Home in Washington, DC, on July 4, 2025.(Brendan Smialowski / Getty Photos)
When Donald Trump campaigned on making America nice once more, not many people realized he was speaking in regards to the Nineteen Seventies. That was a decade of unprecedented inflation and a pointy slowdown in progress after a quarter-century growth following World Warfare II.
We’re simply two quarters into the Trump administration, however the image we’ve seen so far just isn’t good. Within the first quarter of this yr the economic system really shrank at a 0.5 p.c annual fee. A decline in GDP is uncommon, however many people downplayed the drop since there have been uncommon quirks within the knowledge answerable for the decline.
Particularly, there was an enormous surge in imports as companies and households rushed to purchase issues in anticipation of Trump’s tariffs. Imports have been a serious drag on progress within the quarter. However we noticed the reversal within the second quarter, with imports falling again to a extra regular stage. That was by far a very powerful issue behind the three p.c progress reported for the second quarter.
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Whereas the Trump administration touted the large comeback from a 0.5 p.c first-quarter decline to progress of three p.c, these not on the administration’s payroll identified that it’s vital to speak the 2 quarters collectively. And that image just isn’t fairly.
Progress within the first half of 2025 averaged 1.2 p.c. That’s down from a 2.8 p.c progress fee in Biden’s final yr. When Trump talks of turning the economic system round he speaks the reality, he simply will get the path of change fallacious.
Trying on the economic system by class doesn’t enhance the story. Consumption, which accounts for nearly 70 p.c of the economic system, grew at only a 0.9 p.c annual fee within the first half, down from 3.4 p.c in 2024.
Progress within the gadgets which are most discretionary was particularly sluggish. Spending on air journey fell at an 8.5 p.c fee within the first half of the yr. Restaurant spending rose at a modest 1.6 p.c fee in first half, however spending in fast-food eating places, reflecting the state of affairs of extra moderate-income households, fell at a 0.1 p.c fee.
Funding spending just isn’t choosing up the hole. Whereas the AI growth is resulting in some spending, it’s barely offsetting the decline in development. Spending on each manufacturing unit and motels development is sharply decrease in 2025.
The drop in manufacturing unit development is very notable since Trump has positioned the revitalizing of producing on the heart of his agenda. Biden’s semiconductor invoice and Inflation Discount Act led to an unprecedented growth in manufacturing unit development, with the 2024 inflation-adjusted stage greater than twice the 2019 stage. Development is now headed in the other way.
Trump has hopes of lowering the commerce deficit, however we aren’t seeing any seen progress so far. Exports have really fallen barely as a share of the economic system within the first half of 2025. One among our main exports, tourism by foreigners, is falling by means of the ground. Actual spending by foreigners touring in the US fell at a 15 p.c fee in first half of the yr.
The image on employment and wages doesn’t look significantly better. Job progress averaged 133,000 jobs a month by means of June, down from 168,000 in 2024. At 4.1 p.c, the unemployment fee remains to be at a traditionally low stage, however there are some worrying indicators. Notably, the unemployment fee for younger folks and Black staff, two very weak teams, has risen sharply. The latter was 6.8 p.c in June, two full share factors above its all-time low, hit in Could of 2023.
Wage progress additionally seems to be slowing. After growing at a 4 p.c annual fee in 2023 and 2024, the typical hourly wage elevated at only a 3.2 p.c annual fee, evaluating the final three months (April–June) with the prior three months (January–March).
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Going together with slower wage progress, we’re additionally seeing an uptick in inflation. The consumption expenditure deflator that the Fed focuses on in assessing inflation elevated at a 3 p.c annual fee within the first half of the yr. This was far larger than anybody on the Fed had anticipated final fall. As extra tariffs hit within the second half of 2025, inflation is sort of sure to rise additional.
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We’re taking a look at a sample of slowing wage progress and rising costs, which suggests stagnant or falling actual wages. That may additional depress consumption progress, slowing GDP and job progress.
We’re additionally seeing a slowdown in productiveness progress, which is the important thing to rising dwelling requirements in the long term. Productiveness fell at a 1.5 p.c fee within the first quarter. We are going to see modest progress within the second quarter, however the common for the primary half is not going to be a lot above zero. This compares to a 2.1 p.c fee in 2024. Slower productiveness progress is one other issue contributing to rising inflation.
Whereas the financial prospects for the fast future are bleak, the longer-term image is worse. The Trump cutbacks on analysis spending could have huge implications for the longer term improvement of know-how in a variety of areas. His assaults on universities, and particularly international college students, will deprive the nation of many good, hard-working folks of the kind who helped propel the economic system ahead within the final 4 a long time.
And his random tariff charges have alienated all of our buying and selling companions. They’re now eagerly trying to make new commerce offers with one another, in order that they don’t seem to be depending on the whims of a US president who modifications his insurance policies on a whim. The assault on clear vitality can also be locking us into antiquated fossil gasoline know-how that’s falling additional behind by the day. It’s nonetheless early within the Trump administration, so maybe issues will flip round. However we might also find yourself with an financial image that may make the Nineteen Seventies look good.
Dean Baker
Dean Baker, senior economist on the Middle for Financial and Coverage Analysis, is the creator of Rigged: How Globalization and the Guidelines of the Trendy Economic system Had been Structured to Make the Wealthy Richer, and coauthor (with Jared Bernstein) of Getting Again to Full Employment: A Higher Discount for Working Individuals.
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