The US economy is bending — but not yet breaking — beneath the weight of President Donald Trump’s nationalist agenda.

That is the story told by an avalanche of economic data released last week. 

According to those new figures, employers are pulling back on hiring to a dramatic (and unexpected) degree, economic growth is slowing, and consumer prices are rising. And there are strong indications that Trump’s trade and immigration policies are driving all of these trends. 

While last week’s data provides little sign of an imminent recession or inflationary crisis, protectionism is still imposing a heavy toll on US households and businesses. And if hiring continues to slow — while firms’ input costs persistently rise — there is some risk that economic growth could stall out completely.  

Unfortunately, Trump chose to compound that risk on Thursday by doubling down on his radical trade restrictions, imposing tariffs of between 10 percent and 50 percent on the imports of all foreign countries. 

Here is a quick overview of America’s darkening economic picture. 

American employers are pulling back on hiring

America’s labor market is much weaker than previously thought, a Bureau of Labor Statistics (BLS) report revealed on Friday. US employers added 73,000 jobs in July, far fewer than the 104,000 that economists expected.

More alarmingly, the report suggested that job growth was markedly weaker in May and June than the government had previously believed. The BLS always revises its estimates of monthly employment gains, once more data becomes available. Usually, these updates do not fundamentally change the labor market outlook. This time, they did. 

The government initially thought that employers had added 144,000 jobs in May and 147,000 in June; it now believes that they added just 19,000 during the first month and 14,000 during the second. (Trump responded to this unwelcome information by declaring it fraudulent and firing the head of the BLS.)

This updated data suggests that Trump’s tariffs (and tariff threats) have had a detrimental impact on hiring. After he unveiled his plans for sweeping universal tariffs on April 1, employment in America’s manufacturing and “trade and transport” industries abruptly declined:

Trump’s supporters may find it surprising that the enactment of broad tariffs would coincide with a reduction in manufacturing employment. After all, Trump has often described his trade policies as a strategy for creating factory jobs.

But the recent contraction in manufacturing employment makes perfect sense: Trump engineered a large increase in US producers’ costs by making foreign-made metal, lumber, semiconductors, and myriad other industrial materials more expensive. This makes it harder for US manufacturers to expand hiring or gain global market share, as they are now less cost-competitive than rivals in countries without large tariffs.

As trade-sensitive sectors have shed workers, employment growth has become almost entirely dependent on the health care sector, which has accounted for nearly all of the economy’s new jobs added in the past three months. 

Economic growth is losing steam (and becoming more and more dependent on the AI boom)

The latest data on US economic growth tells a similarly disquieting story. 

America’s gross domestic product officially grew at a 3 percent annual rate in the second quarter, after decreasing by 0.5 percent in the first quarter. But both of those figures are misleading. This is because Trump’s trade policies have greatly exacerbated well-known flaws in the government’s approach to calculating GDP. The reasons for this are a bit complex, but the upshot is that the government likely underestimated growth in the first quarter and overestimated it in the second, due to massive, tariff-induced swings in US imports.

Thus, to get a clear picture of the economy’s growth rate, it’s best to look at GDP trends over the first two quarters combined. And over the first half of this year, America’s gross domestic product expanded at a 1.2 percent annualized clip — a much slower pace than both its growth rate in 2024 (2.8 percent) and forecasters’ expectations for 2025 GDP growth when Trump was elected last November (2.1 percent).

As with employment gains, America’s GDP growth is highly imbalanced: An explosion in AI infrastructure spending is playing an outsize part in sustaining our economic expansion. Over the past six months, the artificial intelligence buildout has contributed more to American economic growth than all of consumer spending, according to the Wall Street Journal’s Christopher Mims. Should anything cause America’s tech companies to pull back on data center construction, the US economy could quickly sputter.

Trump’s trade and immigration policies likely explain the bulk of this slowdown in growth. Through ramped-up internal enforcement and restrictions on legal immigration, Trump has succeeded in shrinking America’s foreign-born labor force while deterring the arrival of new migrants. Largely as a result of his policies, America has shed 1.7 million immigrant workers since March. Earlier this month, the Federal Reserve of Dallas estimated that Trump’s immigration policies will lower annual GDP growth by about 0.8 percentage points. 

Meanwhile, Trump’s tariffs are almost certainly dampening both consumer spending (by generating high prices that deter shoppers) and business investment (by raising input costs and uncertainty). As of last Wednesday, Yale’s Budget Lab estimated that Trump’s tariffs would lower real GDP growth annually by 0.5 percentage points. Trump’s most recent batch of duties will almost certainly lower growth even further. 

Prices are rebounding

Typically, when economic growth slows, inflation tends to cool. After all, lower consumer spending and business investment translates into reduced demand for goods and services. And when the demand declines, sellers are often forced to cut prices.

Yet inflation in the US today is actually accelerating, even as growth slackens. Consumer prices in June were 2.6 percent higher than they had been one year earlier, according to Commerce Department data released last week. 

Food and energy prices tend to shift volatilely, so economists often focus on “core” inflation, which excludes both categories. And core prices in June were 2.8 percent higher than 12 months earlier.

Both of these rates were higher than they had been in May. And the underlying data strongly indicates that Trump’s tariffs are largely responsible for inflation’s resurgence. 

Over the past three months, the prices of non-housing services (such as air travel or car insurance) grew at a 1.85 percent annualized rate. That’s an encouraging data point, as services had been the major driver of inflation last year. 

But a sharp rise in goods prices counteracted that disinflation, with core goods prices climbing at a 3.7 percent annualized clip in the second quarter. And price growth has been concentrated in trade-sensitive goods, such as home furnishings and electronics. 

In short, the data suggests that America plausibly would have enjoyed a return to the Fed’s 2 percent target inflation rate this year, had Trump not manufactured a surge in the cost of imported goods. 

The risk of a recession is rising

America’s economy still shows some signs of life. 

The unemployment rate remains at 4.2 percent, a relatively low level by historic standards. And after falling by 0.3 percent in May, inflation-adjusted consumer spending ticked up by 0.1 percent in June. Meanwhile, aggregate weekly payrolls — the sum of all wages paid to private-sector workers in a given week — was 5.3 percent higher in July than one year earlier. This represents an improvement relative to June, when total weekly wages were up just 4.5 percent on the year.

US consumers still boast significant spending power. The AI arms race doesn’t appear to be ending anytime soon. And Trump’s recent package of tax cuts — while detrimental to growth in the long term — could boost demand in the short run. Perhaps for these reasons, betting markets currently give the US economy an 85 percent chance of avoiding a recession by year’s end.

Nevertheless, America’s economic outlook is much gloomier than it was one week ago. Trump’s trade policies have already nudged the US toward stagflation, a simultaneous rise in inflation and stagnation of growth. And most of Trump’s tariffs have yet to actually take effect.

Many sectors are already responding to rising import costs by shedding payroll. If that trend continues, and unemployment rises, consumer spending will likely dip. Faced with less demand, more employers will need to lay off staff, which would further erode spending. A recessionary spiral could ensue.

The Federal Reserve may try to preempt that dynamic by cutting interest rates in September. But if Trump’s tariffs continue to lift consumer prices, the central bank could find itself at an impasse: The Fed normally raises interest rates when prices are too high, and cuts them when job growth is too slow. If both those conditions prevail at once, the Fed will find itself with no good options.

Regardless, this much is clear: Americans are already less prosperous and economically secure than we would have been, had Trump not curtailed our nation’s access to foreign-made goods and immigrant workers.