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Kuttner on TAP

Trump’s faltering economy

Both inflation and employment are getting worse, and the booming stock market is in AI bubble territory.

The Consumer Price Index for September increased at an annual rate of 3.0 percent, the Labor Department reported this morning. This was an increase from 2.9 percent in August, 2.7 percent in July, and around 2.3 percent this past spring, before Trump’s perverse policies began to bite.

Inflation of 3 percent doesn’t seem too bad, but it conceals a great deal of softness in the economy. That weakness will be sufficiently worrisome for the Fed to likely proceed with its planned quarter-point rate cut when the Federal Open Market Committee meets next week. But after that, both inflation and unemployment are likely to worsen, leaving the Fed with no good options.

On the inflation front, Trump’s on-again, off-again tariffs have yet to fully bite, but their impact is likely to increase over time. Other specific price hikes, as in health insurance under the ACA, will begin to hit only in November, although health insurance costs generally are already more than 6 percent over last year’s. In addition, Trump’s killing of antitrust enforcement and other consumer protections is allowing a lot of opportunistic price increases that reflect abuses of market power.

Employment is also weakening. With the Bureau of Labor Statistics staff mostly on furlough because of the government shutdown, precise numbers on joblessness are not available. But myriad indicators of a soft job market are unmistakable. Trump’s rescissions of federal spending and layoffs of federal employees raise the unemployment rate directly, and have cascaded throughout the economy.

As Paul Krugman has observed, every job indicator is soft and getting softer. New hires are barely above the rate of the Great Recession. The rate of long-term unemployment—more than six months without a job—soared in August, and updated numbers are likely to be worse but not available because of the government shutdown.

Jobless rates were higher in August than a year earlier in 243 of the 387 metropolitan areas. More and more corporations are announcing or planning layoffs, including Microsoft, Meta, Intel, Target, and Kohl’s. Amazon plans to replace 600,000 warehouse workers with robots.

One of the most alarming indicators of a risky economy is the heavy reliance on spending by the wealthiest consumers. In a recent speech, Fed governor Christopher Waller, one of Trump’s own appointees no less, pointed out that consumption is heavily skewed to rich people because of the gross inequality in the economy and the stock boom, which many economists think is a bubble.

Waller said, “The highest-earning 10 percent of households are responsible for 22 percent of personal consumption. The top 20 percent of households spend 35 percent of the total. Their share of stock market wealth is even more skewed.” In fact, the top 10 percent of households own 87 percent of stocks, while the bottom half own hardly any.

Moreover, a great deal of capital investment and the stock market boom are driven by artificial intelligence. “Artificial” is the right word. At some point, that bubble is likely to burst, and luxury spending with it.

All told, the seemingly not-too-bad Trump economy is living on borrowed time.

You might wonder how the BLS was able to release this report despite the government shutdown. The answer is that the September data were collected before the shutdown began.

Even so, the release date had to be postponed from October 15 to October 24, while the BLS got a special exemption to bring back a skeleton crew of economists and IT specialists to get the report out, but only to work on inflation and not on employment. This was done because the Social Security cost-of-living increase for next year relies on third-quarter data.

Next month’s CPI report, based on data that the BLS is supposed to be collecting right now, will likely be inadequate, and even more sketchy the longer the shutdown drags on. But other sources in the public domain are likely to show worsening trends in both prices and jobs.

Trump inherited a strong economy. Tearing down the house is the right Trump visual.

– ROBERT KUTTNER

Follow Robert Kuttner on Bluesky