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stagflation
'We're Fast Stumbling Into Stagflation,' Expert Warns as Unemployment Rolls Hit 4-Year High Under Trump
"In contrast with the president's assertion of bustling job creation," said The Century Foundation's Andrew Stettner, "Americans can't get off of unemployment benefits in an economy that has stopped adding jobs outside of healthcare."
Aug 07, 2025
The flow of abysmal U.S. economic data continued Thursday with the release of figures showing that the number of Americans collecting unemployment benefits has reached its highest level in nearly four years, heightening concerns that the Trump administration is pushing the country toward a period of "stagflation."
"Today's unemployment report, coupled with last week's jobs data, suggests that we're fast stumbling into stagflation, with fledgling jobs growth and rising prices," Andrew Stettner, unemployment insurance expert at The Century Foundation, said in a statement following the new Labor Department numbers.
The department said that 1.97 million Americans were receiving unemployment benefits during the week ending July 26, an increase of 38,000 compared to the previous week.
"In contrast with the president's assertion of bustling job creation," said Stettner, "Americans can't get off of unemployment benefits in an economy that has stopped adding jobs outside of healthcare."
The government figures were released a day after private data showed that employment in the U.S. services sector fell last month as prices rose. Meanwhile, U.S. manufacturing activity contracted in July at the fastest pace in nine months, even as President Donald Trump claimed his erratic tariff regime would revive the sector.
"Private data confirms the government numbers, and firing the head of BLS can't change that," said Rep. Gwen Moore (D-Wis.), referring to Trump's decision to terminate Bureau of Labor Statistics Commissioner Erika McEntarfer in the wake of last week's terrible U.S. jobs report—calling into question the reliability of future federal data.
"Republicans are killing jobs and feeding inflation," Moore added. "Trump is making stagflation great again."
"Trump's economy of uncertainty is leading to widespread anxiety, with more than 3 in 4 Americans saying they are concerned about a possible recession."
The recent data—combined with surveys showing American consumers are increasingly struggling with the rising prices of groceries and other necessities—appears to vindicate warnings from economists and other analysts that the U.S. economy is in growing trouble under Trump's erratic stewardship.
"The risk of stagflation has risen meaningfully," Olu Sonola, an economist at Fitch Ratings, wrote in a client note. "Inflation is drifting further from target, private sector economic growth has slowed materially, and the labor market has just sounded a warning bell."
Rachel West and Laura Valle Gutierrez of The Century Foundation wrote earlier this week that "Trump's economy of uncertainty is leading to widespread anxiety, with more than 3 in 4 Americans saying they are concerned about a possible recession."
"And Trump's budget law, which slashes healthcare and food assistance for everyday Americans to pay for more than $4 trillion in tax cuts for the wealthy and corporations, compounds Americans' uncertainty and fear about what the future brings," they added.
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Chances of a Recession Hiked to 35% as Trump's 'Liberation Day' Tariffs Loom
"Don't use his term 'liberation day'! Call it Trump's devastating trade war! He has caused maximum uncertainty, likely to drive the U.S. economy to a near halt," wrote one economist.
Mar 31, 2025
As U.S. President Donald Trump gears up to unveil yet another round of tariffs this week and observers warn of potential "stagflation," the Wall Street giant Goldman Sachs on Sunday published a research note projecting that the chance of a recession in the next 12 months stands at 35%, up from 20%.
"The upgrade from our previous 20% estimate reflects our lower growth baseline, the sharp recent deterioration in household and business confidence, and statements from the White House officials indicating greater willingness to tolerate near-term economic weakness in pursuit of their policies," according to the research note.
Trump has previously said he plans to unveil a slate of reciprocal tariffs on April 2—a day he has dubbed "Liberation Day"—and on Sunday he said they would impact "all" countries to start. The announcement rattled financial markets globally on Sunday, and stocks continued to fall on Monday. The S&P 500 dropped by over 1% at the start of trading, and the index is on track for its worst month since September 2022, according to The New York Times.
"Don't use his term 'liberation day'! Call it Trump's devastating trade war! He has caused maximum uncertainty, likely to drive the U.S. economy to a near halt," wrote the economist and author Anders Åslund wrote on Bluesky on Saturday.
In the research note, Goldman Sachs analysts said they expect Trump's reciprocal tariffs to average 15% across all U.S. trading partners, though product and country exclusions may bring that average down.
Trump has already imposed blanket tariffs on China and blanket tariffs on traditional trade allies like Mexico and Canada, with some carve outs for certain goods. The administration has also enacted global aluminum and steel tariffs, and announced last week that it would impose 25% tariffs on autos and auto parts that are not produced in the U.S. The government will commence collecting the import tax on April 3.
Economists generally agree that tariffs—a tax on imports from other countries—are a cost that is largely passed on to consumers, though tariffs can be used to support domestic industries by promoting consumption of domestic-made goods.
In early March, U.S. Rep. Chris Deluzio (D-Penn.) penned an op-ed in the Times warning against "anti-tariff absolutism" on the grounds that they can be used as one part of a broader industrial policy to revitalize American manufacturing.
"Mr. Trump's tariff approach has been chaotic and inconsistent. There's no doubt about that. But the answer isn't to condemn tariffs across the board," Deluzio wrote.
Last week, United Auto Workers (UAW) president Shawn Fain, historically a Trump critic, praised the decision to impose auto tariffs.
"The UAW and the working class in general couldn't care less about party politics; working people expect leaders to work together to deliver results," said Fain in a statement. "We will work with any politician, regardless of party, who is willing to reverse decades of working-class people going backwards in the most profitable times in our nation’s history. These tariffs are a major step in the right direction for autoworkers and blue-collar communities across the country."
Meanwhile, Goldman Sachs also predicts higher inflation and lower gross domestic product (GDP) growth. Higher tariffs are likely to increase consumer prices, according to the analysts, who raised their yearend 2025 inflation forecast by 0.5 percentage points to 3.5%, above the Federal Reserve's target inflation rate of 2%.
Also as a result of tariff news and first quarter GDP data, Goldman Sachs has lowered its 2025 GDP growth forecast by 0.5 percentage points to 1%, when measured from the fourth quarter of 2024 to the fourth quarter of 2025. Also, the report's analysts now projects unemployment reaching 4.5%, a 0.3 percentage point increase from the previous forecast.
The Irish journalist and economic commentator David McWilliams warned in an opinion piece published Monday by Common Dreams that the "combination of a rapidly weakening economy and fear of inflation points to an old enemy not seen since the 1970s: stagflation, where unemployment and inflation rise together."
Other observers have also warned that stagflation could be looming.
"Launching chaotic trade wars with our allies and gutting Social Security, Medicaid, and other vital programs in order to fund tax breaks for his billionaire donors isn't making life more affordable for working-class families," said Alex Jacquez, the chief of policy and advocacy at the Groundwork Collaborative, in a statement earlier this month. "It is, however, a perfect recipe for stagflation."
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Look Around: The Signs of a Trump Recession Are Everywhere
The latest signs from the American heartland are not encouraging. The average voter’s confidence about their economic prospects is falling quicker than at almost any other time on record.
Mar 31, 2025
Once you start looking, the signs of an American recession are everywhere.
The second-hand market is heating up, a classic pre-recession indicator. People are unloading luxury goods. Second-hand clothes apps, such as RealReal, Depop and Grailed, are filling up with designer handbags and sneakers bought during the la-la economy of the pandemic. This always happens before a crash.
You might remember that eBay boomed before the 2008 recession. People panic-sold designer handbags faster than you could say Anglo Promissory Note. Splurges always lead to sell-offs.
It looks like 2025 will be the year the pandemic chickens come home to roost. When the plague hit five years ago this week, governments closed down our economies and rather than impoverish workers who were forced to stay home, national treasuries opened the fiscal and monetary spigots. Government spending soared and interest rates were cut to negative territory. About $15 trillion (€13.85 trillion) of fiscal/monetary sweeties were doled out by the world’s richest governments to protect their stay-at-home electorates. (The governments had no choice; a great depression would have accompanied the plague.)
Investment and speculation took off in a splurge of credit, consumption and debt. As sure as night follows day, the credit cycle rolls and we are about to pay a terrible price for the emergency economics of Covid-19.
In tune with our always-on age, the coming American recession will be live-streamed on Instagram. Every small change in consumer confidence and business sentiment will be videoed, shared, commented on and thus amplified. We are witnessing the TikTok-isation of the business cycle, meaning the economic cycle – previously a slow-moving, deliberate phenomenon – will pick up pace, becoming fitful and immediate.
In the past, it took people time to realise that the economic backdrop was changing. Today, with social media and a US president who behaves more like a near-bankrupt day trader than a long-term investor, our collective time horizons have been slashed from years to months, weeks to minutes. The impact of a slowing economy on investment and spending will be almost instantaneous.
The latest signs from the American heartland are not encouraging. The average voter’s confidence about their economic prospects is falling quicker than at almost any other time on record. The litany of surveys pointing to recession, or more accurately a Trump-cession, not to mention the sell-off in American stock markets, suggests we are on the cusp of something enormous. The incoherence of Trump economics – with its on-and-off tariffs – is making already indebted consumers and businesses even more anxious.
Punters across all income brackets are panicking and consumer confidence is collapsing, although it is richer workers who are most worried. This probably reflects the fact that middle-class Americans are heavily invested in the stock markets, which are back to where they were in September and falling farther. Since Trump was inaugurated, the percentage of voters who are worried about their job has shot up from 30 per cent to close to 80 per cent of all those surveyed. The number of consumers worried that businesses might close has spiked up to the highest level since records began in the middle of the 1980-81 recession.
People’s confidence about where their income will be in a year has plummeted to the lowest level since 2009, right after the Great Crash. Worse still, the average American is now more worried about inflation than at any time since the beginning of the pandemic, when prices shot up because of the shutdown of industry.
This combination of a rapidly weakening economy and fear of inflation points to an old enemy not seen since the 1970s: stagflation, where unemployment and inflation rise together. In such an environment, prices rise at the same time as incomes fall. The main trigger is the broad electorate’s understanding that tariffs are a tax on spending that will raise the price of goods for working Americans.
What is going on in corporate America, the part of the economy that was supposed to be boosted by Trump? Earnings are an important leading indicator, as profit squeezes foreshadow lay-offs and investment cuts. Corporate profits surged in 2021 but have now entered a slower growth phase. By the third quarter of 2024, US corporate profits fell 0.4 per cent quarter-on-quarter, the first decline in years. By late 2024, year-on-year profit growth was 5.9 per cent, down from more than 20 per cent in 2023 – this is a huge slowdown in margins.
All the while the nonsense that is Trump’s economic plan continues to be “sane-washed” by many writers and commentators as if there is some brilliant economic rabbit about to be pulled out of a hat by the sages of Mar-a-Lago. Declaring a trade war on your four biggest trading partners – Canada, Europe, China and Mexico – will simply push up American prices, robbing US consumers.
Tariffs are a way of taking something away from somebody. Trade allows better, cheaper products to come in from abroad, putting manners on local crony businesses. Tariffs protect second-rate local businesses, allowing them to sponge off consumers, flogging second-rate goods when punters could be buying superior imported stuff. In the end, tariffs take from buyers and give money to yellow-pack local sellers who can’t compete in the international market. There’s a reason that low tariffs, which have been reduced continuously in the past 50 years, corresponded with the greatest expansion of the global economy ever seen.
Protectionism is a sign of weakness, not strength. Americans are not being “ripped off”; in fact, they are being enriched by having access to better, cheaper, superior products made by more productive people. Rather than being the beginning of a great new era of American prowess, tariffs are a sign of insecurity and fear, marking the end of the great American century that began after the end of the first World War.
The fascinating thing is that the average “Joe Six Pack” American appreciates this; otherwise, why is he so fearful about the future?
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