US President Donald Trump's on-again, off-again tariff announcements over the past several months have made it difficult for businesses to plan new investments or to hire. Photo / Getty Images
Some golden age.
Job growth is weak. Inflation is strong. The outlook is deteriorating. And the headwinds are blowing from Washington, DC.
Whether you blame President Donald Trump’s unorthodox tariff and immigration policies or a slow-footed Federal Reserve Chair Jerome Powell, the United States federal government is not doing the economy any favours these days.
The US began the year having grown at an annual rate of 2.4% in the final three months of 2024. Hiring was robust: employers added 323,000 jobs in December.
Fast forward to today and the news is less cheery.
Last week, the Bureau of Labour Statistics said the economy added only 22,000 jobs in August, meaning the labour market has basically stalled since the President kicked off his historic “Liberation Day” tariff offensive in April. Some on Wall Street are mulling the likelihood of a recession.
“The odds are close to 50/50, maybe more,” said Neil Dutta, head of economic research at Renaissance Macro Research in New York. “The case for a slowdown is pretty compelling.”
Administration officials dismiss that possibility out of hand. But, outside of recessionary periods, the US has not seen hiring this weak relative to the size of the economy in more than 60 years, Jason Furman, a former adviser to President Barack Obama, posted on X.
Trump and his advisers were quick to point the finger at the Fed or the BLS while urging Americans to be patient.
In an interview with CNBC, Commerce Secretary Howard Lutnick said the economy could dazzle again in as soon as “six months”.
The President himself began laying the groundwork for that argument one day earlier, saying that “in a year from now”, the employment picture will be brilliant, thanks to new investments in artificial intelligence and other marvels.
Whether the Administration can convince the public that labour market weakness will prove transitory remains to be seen.
The Biden Administration, which repeatedly insisted that the worst inflation in 40 years would soon dissipate, learned that voters do not welcome being told to grin and bear it while awaiting brighter days.
Less than two hours after the disappointing jobs report (on Friday local time), the President took aim at one of his favourite targets, the Fed.
“Jerome ‘Too Late’ Powell should have lowered rates long ago. As usual, he’s ‘Too Late,’” the President posted on Truth Social.
Trump, who has waged a rhetorical war against the central bank and its leader all year, has repeatedly said it should cut interest rates by 3 full percentage points. That is a view shared by few, if any, private sector economists.
Consumer price inflation has dipped to an annual rate of 2.7% from 2.9% one year ago. But the Fed’s preferred price measure, the core personal consumption index, rose to 2.9% over the past year, well above the 2% target for price stability.
Still, with inflation cooling, however slowly, and employment weakening, investors for weeks have expected the Fed to cut rates at its September 16-17 meeting. In the wake of the latest jobs report, that sentiment hardened into certainty.
There is now a 90% likelihood that the Fed will approve a quarter percentage point cut and a 10% chance of a half-point cut, according to CME FedWatch, which tracks interest rate futures contracts.
The President hopes lower rates will bring mortgage costs down and spark a rebound in the becalmed housing market. The unsold inventory of homes on the market is up almost 50% from December, when the Fed last cut rates.
In August, Powell signalled rate cuts might be imminent. In a speech to an annual central bank conference in Jackson Hole, Wyoming, he said “downside risks to employment are rising”, suggesting that the Fed would pivot from a focus on inflation-fighting to bolstering the labour market.
Economists at Goldman Sachs told clients they expect consecutive rate cuts at the next three meetings of the Fed’s monetary policy committee: this month, October and December. Analysts at Barclays also increased their forecast to three cuts from two.
To be sure, Trump warned voters earlier this year to brace for a painful transition as he retools the economy for a manufacturing-rich “golden age”.
Treasury Secretary Scott Bessent likewise said in March that the economy must endure a “detox period” as it weans itself from an excessive reliance on government jobs.
Kevin Hassett, director of the National Economic Council, told CNBC that he expects the preliminary August jobs figure to be revised upward, as often happens.
Each month, the government estimates the number of employed Americans by surveying a random sample of businesses. Their answers do not always arrive on time for the initial estimate, leading to revisions that can result in large numerical changes.
Estimates produced in August, when many people are on holiday, have undershot actual job totals by an average of 40,000 positions over the past decade, Goldman Sachs said.
Administration officials also have said they expect provisions in Trump’s signature legislation, which he dubbed “the One Big Beautiful Bill”, to encourage greater business investment. In July, Bessent promised Fox that the measure “will set off growth like we have never seen before”.
Some Wall Street banks forecast a more muted performance, at least in the short term. Morgan Stanley pegs economic growth in the current quarter at 1.5%.
Today’s labour market weakness can be traced to several Trump policies, economists said.
On-again, off-again tariff announcements over the past several months have made it difficult for businesses to plan new investments or to hire.
Trump has imposed the highest tariffs since the 1930s in a bid to encourage domestic manufacturing. Yet factory employment has dropped by 41,000 since February.
Other trade-related sectors, including mining, wholesalers and oil and gas extraction, also have seen payrolls shrink in recent months.
And the boom in factory construction that began under President Joe Biden ended after Trump eliminated many of the government subsidies that encouraged such projects.
“We aren’t even seeing the beginnings of a tariff-related recovery in manufacturing. You don’t expect to see it overnight. But it’s going in the wrong direction,” said economist Dean Baker, co-founder of the Centre for Economic Policy Research in Washington.
The President’s crackdown on illegal immigration, including workplace raids like the one at a Hyundai plant in Georgia, is driving down the availability of foreign-born workers, which also weighs on hiring.
Over the first six months of the year, the nation’s foreign-born population fell by more than 1 million, according to the Pew Research Centre.
Trump’s tougher immigration policy, coupled with the effects of societal ageing, are reducing potential monthly job growth by more than 100,000 hires, according to Barclays.
Total federal government employment had also declined by 97,000 workers this year, as Trump embraced the US Doge Service’s efforts to shrink public agencies.
State government employment, which dropped by 12,000 jobs in August, also is likely to remain under pressure. Trump’s Big Beautiful Bill seeks to shift financial responsibility for social programmes such as Medicaid to already cash-strapped state governments.
“It’s a pretty wide range of states facing a budget squeeze, even before Trump’s fiscal legislation,” Dutta said.
“It was already bad. Now it’s getting worse.”
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