The US economy is experiencing a worrying trend of stagflation, characterized by lower growth and higher prices. According to the latest data, the economy shrank at a 0.5 percent annual rate in the first quarter, with imports being a major drag on growth.
While the Trump administration touted a significant turnaround from that decline, the picture when looking at the two quarters together is not optimistic. The average growth rate for the first half of 2025 is just 1.2 percent, down from 2.8 percent in Biden’s last year.
In terms of consumption, which accounts for over 70 percent of the economy, growth slowed to a 0.9 percent annual rate in the first half, down from 3.4 percent in 2024. Discretionary spending on air travel fell at an 8.5 percent rate, while restaurant spending rose at a modest 1.6 percent rate.
Investment spending is also failing to offset the decline, with construction spending sharply lower in 2025. The drop in factory construction is especially notable, as Trump has placed revitalizing manufacturing at the center of his agenda.
The trade deficit is another concern, with exports falling slightly and tourism from foreigners plummeting at a 15 percent rate. The unemployment rate remains historically low, but job growth averaged just 133,000 jobs per month through June.
Wage growth also appears to be slowing, with an average hourly wage increase of just 3.2 percent annually in the first half of 2025. This has contributed to rising inflation, with the consumption expenditure deflator increasing at a 3 percent annual rate.
The economic prospects for the immediate future look bleak, but the long-term picture is even more concerning. Trump’s cutbacks on research spending and attacks on universities will have significant implications for technology development, while his tariff policies are alienating trading partners and locking the country into antiquated fossil fuel technology.
Source: https://www.thenation.com/article/economy/trump-economy-stagflation-consumer-spending-taxes