This past week was punctuated by a perfect storm of negative US economic reports and events. Together they mean the door to recession in the US has now opened—quite contrary to all of Trump’s hype that the US economy is doing great.

The reports in question are the July jobs report lasts Friday and the advanced (preliminary) US GDP report for the 2^nd quarter (April-June) released a few days before. The events associated with these reports were (1)Trump’s announcement imposing widespread tariff hikes ranging from 15% to 41% on more than 40 countries, with even higher tariffs previously announced on China, Russia, Mexico, Canada as well as ‘across the board’ global tariffs steel, aluminum, copper and other commodities; (2) and The Federal Reserve bank’s decision to keep US interest rates at current levels for at least another six weeks.

If last week’s 2^nd quarter GDP data unlocked the door to recession, then last Friday’s Jobs data kicked it wide open. And Trump’s tariffs coming behind threaten to blow it off its hinges.

The Jobs Data Tsunami

It’s generally acknowledged that jobs are a lagging indicator of the condition of the US economy. If so, the July Jobs report shows that there’s no more lag. Jobs have caught up and Friday’s August 1, 2025 report shows Labor Market conditions in the US economy are now flashing red.

According to the US Labor Department’s Establishment Survey (CES) only 73,000 net new jobs were created in July. Moreover, this number is likely to be downward revised, since the July jobs report also revised its previous May and June reports downward big time: for May, the jobs created were reduced from an initially reported 144,000 jobs created that month to only 19,000 in fact: for June, the revision was from 147,000 to 14,000. So when July is similarly revised, it’s highly likely the 73,000 will be reduced dramatically as well. This will mean the total jobs created over the past three months will be barely 50,000!

It’s generally acknowledged the economy has 125,000 new workers entering the labor force and economy every month. The economy must therefore create that many jobs every month just to absorb new entrants, mostly youths seeking jobs for the first time. Only 50,000 created means more than 300,000 are entering the ranks of the unemployed not gainful employment.

The US Labor Department has a second jobs survey to the CES, which covers mostly large companies. The second survey is called the Current Population Survey or CPS. It covers more small and medium sized businesses as well as unemployment levels the CES does not report. The CPS report on Friday showed that new entrants’ unemployment rise by 275,000 in July.

The plight of new workers seeking employment is not the only negative indicator of a rapidly deteriorating US labor market this summer. Here’s some other telling job indicators:

+ The general level of employment in July fell by -260,000. It would have been an even greater decline had the level of part time employment not also risen by 433,000 as well. No doubt many companies converted their full time employed workers to part time in lieu of laying them off. Conversion of full time to part time typically occurs with the onset of early stages of recession.

+ Beyond just July, the CPS revealed that since May 1 the Employment level for the US economy in general declined by -863,000.

+ The unemployment rate, also indicated by the CPS only, remains at approximately 8% for the entire US labor force of 170 million—not the ‘official unemployment rate of 4.2% one consistently reported by the mainstream media and hyped by politicians. The 8% includes the 50 million plus part time, temp, discouraged, independent contractor, gig and similar job categories that the ‘official’ 4.2% excludes.

+ The 8% means there’s roughly 14 million US workers unemployed or underemployed. Of that 14 million, those unemployed long term (more than 27 weeks) has risen sharply as well over the summer. In July alone their numbers rose by 179,000.

Multiple statistics show the band-aid has been ripped off the obfuscation of the real condition of the labor market that has prevailed for at least this past year, exposing the long festering wound beneath.

The labor market has been weak for some time, as this writer has been reporting repeatedly over the past year. One needed only to look behind the mainstream media’s cherry picked reporting of the most favorable numbers in the two jobs reports, ignoring other data in the same reports that were growing consistently weaker.

What’s different the past three months, and in the July report in particular, is that the real rot in the jobs market could no longer be covered up by selective media reporting or by politicians’ hype.

Trump’s response to the recent jobs data has been to shoot the messenger, as he quickly announced his firing of the Labor Department’s statistics chief. But there’s no politically ‘cooked numbers’ to make him look bad here, as Trump claims. It’s just that the facts have now deteriorated to such an extent that even efforts to pave over the pot holes with marginal under-reporting and selective media reporting can no longer cover up the true condition of the deteriorating jobs ‘road-bed’.

The US GDP April-June Report

The second report indicating the US economy now balances on the precipice of recession is the advance (preliminary) US GDP report for the 2^nd Quarter 2025. Here’s just three reasons why the announced 3% growth rate is not actually 3%.

First, readers should understand the US, virtually alone among advanced economies, puffs up its quarterly GDP numbers by multiplying the quarter change from the previous quarter by annualizing it. That is, 3% for the 2^nd quarter is actually 4 times roughly what the economy actually grew from the previous 1^st quarter.  3% sounds a lot better than 0.75% if one is publicly hyping the growth rate in the media.

However, even the 3%(0.75%) is grossly over-estimated for several reasons. Here’s just two of many: First, real GDP is artificially boosted by under-estimating the real rate of inflation. This occurs every report. Second, in the case of the 2^nd quarter GDP report, the 3% is grossly over-estimated by temporary effects due to Trump’s current tariffs policies now rolling out which has dramatically distorted the contribution to GDP from what is called ‘net exports’—i.e. the difference and gap between imports into the US and US exports to the rest of the world.  For decades, imports have significantly exceeded exports. The result is that ‘net exports’, as the gap is called, has been a consistent subtraction from GDP from other categories like consumer spending, business investment, and government spending.

Let’s look at the under-reporting of real GDP due to low-balling inflation, and then the volatile impact of Trump’s tariffs on GDP for the entire first half of 2025.

(How Under-Estimating Inflation Over-Estimates GDP) 

When the government reports GDP it’s for what’s called ‘real’ GDP. Real means adjusted for inflation (unadjusted is called ‘nominal’ GDP). The media reports the ‘real’. For the 2^nd quarter that was the 3%. The problem is the inflation adjustment used greatly understates actual inflation. And the more it underestimates actual inflation, the more in turn real GDP is over-estimated.

The price index used to estimate real GDP is called the PCE. For the 2^nd quarter the PCE was 2.1%. In the first quarter it was higher, at 3.7%. So simply by reducing PCE from 3.7% to 2.1%, all things equal the real GDP of 3% was boosted by a 1.6% lower PCE in the 2^nd quarter.  If PCE in the 2^nd quarter was 3.7% as in the 1^st quarter, then 2^nd quarter real GDP would be 1.4% instead of the reported 3%.

Ok. Some will argue perhaps inflation did abate significantly in the 2^nd quarter compared to the first. Perhaps inflation was indeed 40%+ less in the 2^nd compared to the 1^st. But whichever the quarter PCE grossly underestimates actual inflation for dozens of reasons due to faulty assumptions and questionable methodologies used by the government to get PCE. Don’t think the government actually goes out and surveys price changes by businesses to get the PCE, like it does the other price index called the Consumer Price Index. It doesn’t. PCE is determined totally by estimating prices from other sources than the actual prices charged by businesses.

For example, let’s take insurance costs for home, auto, etc. which have been surging the past year. Insurance prices aren’t surveyed. They are extrapolated from insurance company profits. If the big insurance companies hide their profits in order to pay less taxes—which they do—then insurance inflation is grossly underestimated. But that’s what happens with PCE. How about rent inflation. Rents in the PCE index are calculated from reported new rental contracts from a subset of big apartment owners. Landlord price hikes for renters with existing contracts do not report price hikes within the term of the rental contract. There are dozens such examples that result in PCE underestimating actual inflation. Nonethless, PCE is used to low ball actual inflation in order in turn to over-estimate reported ‘real’ GDP. In short, 3% GDP in 2^nd quarter is not actual GDP because PCE inflation is not actual inflation.

There are many other ways GDP in general is always over-estimated, apart from the faulty inflation adjustment. There are issues with seasonality adjustment methodologies. There are issues with how GDP is periodically re-defined in order to make it look larger. The latest such example was in 2013 when the government included as business investment items like business logos, trademarks, R&D expenses, IP and other similarly un-estimable values. The government simply accepts whatever businesses tell it are the increase in value (and thus price) of these ephemeral items, and then adds them to GDP.  When first introduced more than a decade ago, this boosted real GDP from business investment by more than $500 billion a year. Thus real business investment and its contribution to GDP is, and has been, less than reported every year.

Trump Tariffs & Volatile Net Exports

The even bigger reason why the 2^nd quarter GDP growth of 3% is misrepresented has to do with Trump’s recent tariffs and trade policies. Briefly stated: nearly all of the 2^nd quarter 3% GDP growth was due to the collapse of imports to the US economy in the quarter in response to Trump’s tariffs.

In the 1^st quarter 2025, companies increased their imports excessively in anticipation of Trump’s coming tariffs. That artificially exacerbated the gap between exports from the US and imports to the US. A big negative number resulted, as imports exceeded exports by a wide margin. Imports thus subtracted from overall GDP calculation in the 1^st quarter, overwhelming the effect on GDP from government spending, consumption, and business investment. GDP thus contracted by -0.5% in the first quarter. Virtually all due to the effect of import surge.

This flipped in the 2^nd quarter. Imports that formerly surged in the 1^st quarter collapsed in the 2^nd. The difference between imports and exports now added to GDP. How much? Around 5% or 2% more than the actual 3% GDP. So what subtracted from the 5% to get the 3%? Business investment contracted, government spending flattened to virtually zero and consumption slowed. That knocked 2% off the 5% from imports-exports to get to the 3%.

Considering both quarters, it’s clear tariff policy and its impact on exports and imports, especially the latter, is distorting the numbers for GDP in the first half of the year 2025.

But beneath this what’s happening is business investment, a more permanent and less volatile factor in GDP determination, is steadily falling. In part due to tariff and trade volatility but also due to more fundamental forces and developments within the US economy. The same can be said for consumer spending, now steadily slowing even if still growing. In addition, Trump fiscal policies—spending cuts for social programs, government employment, and department dismantling are also building pressure toward less government GDP contribution.

US Economy Next 6-12 Months

The US economy is now at the precipice of recession and will likely deteriorate further over the next 6 to 12 months, and especially so in 2026. Here’s why:

Trump’s ‘big beautiful bill’ Act just passed by the Congress will have a net negative impact on GDP, and will not boost US economic growth as Trump claims.

Most of the at least $3 trillion in corporate and individual (and estate) tax cuts are just a continuation of previous 2018 cuts. The effect of the 2025 bill is just to make them permanent. That’s not net new fiscal stimulus from tax cutting. Meanwhile, the so-called working class $500 billion tax cuts in the bill—for tips, overtime pay, social security, interest on new cars, etc.—have been dramatically reduced and made temporary.

In contrast, the program and employment spending cuts in the bill—for Medicaid, ACA subsidies, education, layoffs of federal workers, and so on—amount to at least $1.5 trillion and take effect immediately. They will significantly reduce current consumer spending this year and next. Furthermore, Trump’s cuts in spending and layoffs will soon begin to spill over to state and local government spending cuts and layoffs, as the states will have to make up for reduced Federal government support and find ways to continue education, health and other spending from their own budgets. They too will have to begin layoffs and cuts to programs, both of which will exacerbate consumer spending in their states.

Add to all this what economists call the ‘multiplier effects’. Tax cut multiplier effects are less than spending cuts multiplier effects. Tax cuts don’t immediately result in more investment by businesses or wealthy investors. They lag. Moreover, the more the cuts accrue to the more wealthy and corporations, the less is actually spent of the total cuts. Some of the cuts are just hoarded. Some are distributed to shareholders as stock buybacks and dividend payouts. Some are invested in financial asset markets, none of which add to GDP. And some are redirected to offshore investment which also contributes nothing to US GDP. So tax multiplier positive effects are relatively low, and increasingly so in the 21^st century as the US economy has globalized and financialized.

In contrast, the multiplier negative effects from spending on programs and jobs are immediate and much higher. This is especially more so, to the extent the spending cuts negatively impact incomes of middle to low income levels, which the Trump spending cuts clearly target. In other words, the composition of the Trump tax and spending cuts are net negative and exacerbate the negative multiplier effects of the combined tax and spending cuts as well.

In summary, over the next year US GDP is likely to weaken due to less consumer spending—as state and local government layoffs rise and Trump spending cuts take effect as well as due to less immediate and historically low impacts of tax cuts on the real economy—while the short term positive effect on Imports-Exports on 2^nd quarter GDP dissipates.

The recent Jobs and GDP reports reveal the door to near term recession has opened. Trump tariff, tax and spending policies will likely kick it wide open as they take effect.

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