Bringing Back Stagflation, Lower Growth, and Higher Prices

August 1, 2025

When Trump talks about turning the economy, he tells the truth – he just makes the direction of change wrong.

Donald shows your signature on "A great beautiful bill — Donald Trump shows his signature “Big Big Bill” in the White House in Washington, Colombia District, July 4, 2025.(Brendan Smilev / Getti Image)

When Donald Trump was campaigning to make America big again, not many of us realized what he was talking about the 1970s. It was a decade of unprecedented inflation and a sharp slowdown after the boom a quarter of a century after the Second World War.

We just two quarters in the Trump administration, but the picture we have seen today is not good. In the first quarter of this year, the economy actually decreased by 0.5 percent of the annual rate. GDP decrease is unusual, but many of us reduced the fall, as the data responsible for the decline was unusual quirks.

In particular, there was a large splash of imports when businesses and households rushed to buy things waiting for tariffs on Trump. Imports was the main dragging in the quarter. But we saw the reversal in the second quarter, and the imports again applied to a more normal level. It was, of course, the most important factor for 3 percent growth, registered for the second quarter.

Current Issue

While the Trump administration has advertised a large return from the first quarter by 0.5 percent to 3 percent growth, those who are not on the salaries of the administration noted that it was necessary to talk about the two quarters together. And this picture is not beautiful.

The growth in the first half of 2025 was 1.2 percent on average. This decreased by 2.8 % growth last year Biden. When Trump talks about turning the economy around, he tells the truth, he is just mistaken with changes.

Looking at the economy by category, it does not improve history. Consumption, which is almost 70 percent of the economy, increased by only 0.9 percent in the first half, which decreased compared to 3.4 percent in 2024.

The growth of objects that are most discrete was particularly slow. Air travel costs in the first half of the year decreased by 8.5 percent. The cost of the restaurant increased with a modest 1.6 percent rate in the first half, but the cost of fast food restaurants, which reflects the situation with more moderate households, decreased by 0.1 percent.

Investment costs do not pick up the space. While AI BOOM leads to some costs, it practically does not compensate for the reduction of construction. Costs both at the factory and at the construction hotels are sharply below in 2025.

The fall in the construction of the factory is especially characteristic, as Trump put the revival of production in the center of its agenda. The law on semiconductor bills Biden and the Law on Inflation Reduction led to an unprecedented factory construction, and the 2024 inflation level is more than twice as much as the level of 2019. Construction is now heading in the opposite direction.

Trump hopes to reduce trade deficits, but today we see no visible progress. Exports actually fell as the share of the economy in the first half of 2025. One of our main exports, tourism by foreigners, gets through the floor. The real expenses of foreigners traveling to the United States decreased by a 15 percent rate in the first half of the year.

The picture of the employment and wages does not look much better. Occupation growth averages 133,000 jobs a month to June, which is compared to 168,000 in 2024. At 4.1 percent, the unemployment rate is still at a historically low level, but there are some disturbing signs. In particular, the unemployment rate for young people and black workers, two very vulnerable groups, increased dramatically. The latter amounted to 6.8 percent in June, two full interest points above all the time, reaching in May 2023.

It seems that wage growth is also slowed down. After an increase in the 4 percent annual rate in 2023 and 2024, the average hourly wage increased by only 3.2 percent annual rate, comparing the last three months (April – June) with the previous three months (January – March).

Going along with the slower growth of wages, we also see the suppression of inflation. Consumption costs, which the Fed focus on inflation, increased by 3 percent annual rate in the first half of the year. It was much higher than anyone in the Fed was waiting for last fall. As in the second half of 2025, more tariffs struck, inflation is almost confident that it will increase further.

We also see a slowdown in productivity, which is the key to raising living standards ultimately. Productivity decreased by 1.5 percent rate in the first quarter. We will see modest growth in the second quarter, but on average, the first half will not be much higher than zero. This is compared to 2.1 percent rate in 2024. Slow productivity growth is another factor that promotes inflation growth.

Although the economic prospects of the near future are gloomy, the long -term picture is worse. Trump’s reduction on research costs will have great consequences for future technology development in a wide range of areas. His attacks on universities, and especially foreign students, will deprive the countries of many intelligent, hardworking people who helped move the economy forward in the last four decades.

And his random tariff rates delivered all our trading partners. Now they are eagerly trying to conclude new trade deals with each other so that they do not depend on the whims of the US president who changes his whim. The attack on pure energy also closes us into the ancient fossil fuel technology, which is behind every day. Even early in the Trump administration, so maybe everything will turn. But we can also complete an economic picture that will make the 1970s well.

Ding Baker

Dean Baker, Senior Economist of the Center for Economic and Political Studies, is the author Falsified: both globalization and the rules of the modern economy were built to make richer richerand co -authored (with Jared Bernstein) Return to full employment: Best deal for workers.