President Donald Trump has been back in office long enough for Americans to expect at least glimmers of the economic golden age he promised. Instead, warning signals are flashing.
They’re now coming from voters as well as from the patchy data available during a record-long government shutdown. The economy is expanding, but reliance on the artificial intelligence boom — and the stock-market wealth it’s generated — makes growth look lopsided. Play Video
Democrats trounced Trump’s Republicans last week in elections where cost-of-living anxieties loomed large. Half of the respondents in an October survey by the Harris Poll for Bloomberg News said the economy wasn’t working for them – up from 41% in February – and only one-third said their finances were better than a year ago.
To be sure, analysts caution against reading too much into off-year ballots, and many Trump policies have yet to fully kick in. His tax cuts promise to boost business investment, which has already thrived in the race to build data centers — though there’s also a headwind from Trump’s trade wars, which led many firms to freeze capital spending.
For now, with the job market cooling, consumer surveys and political polls find that Americans are downbeat about the economy and the president’s handling of it. Democratic candidates who campaigned on pocketbook issues won by big margins in Virginia and New Jersey governors’ races — tapping the same anxiety over high prices that helped Trump defeat Joe Biden, and that he’d promised to relieve from day one.
“The economy remains resilient on the surface, but it’s increasingly dependent on three narrow, interconnected ‘A-pillars’: affluent consumers, artificial intelligence-fueled investment and asset price gains,” wrote Gregory Daco, chief economist at EY-Parthenon and president of the National Association for Business Economics. “If any one of these pillars weakens, the overall structure would become much less stable.”
‘Bearing Fruit’
The president and his team acknowledged their overhaul wouldn’t bear fruit overnight – while also setting expectations for when it would. By the fourth quarter, “you will feel the power of Donald Trump’s economy,” Commerce Secretary Howard Lutnick told Bloomberg Television back in March.
Now, Treasury Secretary Scott Bessent is shifting that timeline. “2026 is going to be a gangbuster year and Americans will feel it in their pocketbooks,” he told Fox Business last week. Trump himself has argued he’s already delivered on his promises, telling reporters “I don’t want to hear about the affordability” because prices are “much less.”
On the growth front, what economists see right now is a slowdown capping Trump’s rollercoaster first year. US gross domestic product shrank at the outset — thanks to a monumental import surge, as firms and consumers rushed to get ahead of tariffs — and then rebounded fast for a while.
What the White House sees is a “gradual transition” underway between the Biden and Trump economies, according to Pierre Yared, acting chair of the Council of Economic Advisers.
“The policies of the president are bearing fruit,” Yared said in a telephone interview. He pointed to three main metrics — overall growth, well-paying jobs, and building secure supply chains in America — as well as US outperformance over peers like the European Union.
The shutdown has delayed the release of September jobs data and other economic numbers. Alternative sources indicate anemic hiring. Unemployment is low but rising. Companies including Amazon.com Inc. and Target Corp. are laying off workers. One report shows US firms announced the most job cuts for any October in more than two decades.
Manufacturing in particular, where Trump promised a tariff-led renaissance, has struggled. It’s been in contraction for eight straight months and shed 42,000 jobs since April – the longest losing streak since the pandemic — after the president unveiled his global tariffs.
Yared said what matters is the quality of jobs, and he pointed to a pickup in manufacturing productivity this year, as well as higher inflation-adjusted weekly pay in factories, mining and construction – all priority areas for the administration.
In industries such as manufacturing, construction, agriculture and hospitality, the pool of available labor has shrunk in part because of Trump’s immigration crackdown. After a wave of raids and deportations, monthly border crossings — which surged under Biden — have plummeted close to zero.
That’s left some employers struggling to find workers, though it also means fewer new jobs are required to keep unemployment steady. Still, the conservative American Enterprise Institute estimates that Trump’s policy shift will trim growth by as much as 0.4 percentage point this year.
Surveys show Americans are worried about the job market — and the economy overall. RealClearPolitics polling averages for Trump’s approval ratings on the topic have declined sharply since he returned to office in January. Consumer sentiment this month plunged close to the lowest on record.
Tariff Whipsaw
Trade has been at the top of Trump’s second-term agenda. The president has followed through on campaign promises to hike import taxes, with the goals of revitalizing manufacturing, erasing deficits with US trading partners, and raising government revenue.
The latter is happening: with US tariffs now their highest in roughly a century, the Treasury Department is collecting around $30 billion a month. Trump also touts the investments in the US that companies and trade partners have pledged as a result of his dealmaking.
But his on-and-off approach to imposing the duties – illustrated again last month when he dialed back charges on Chinese imports – has caused tremendous uncertainty, with many businesses halting investment and hiring decisions until they see where rates settle.
The Supreme Court may yet have a say in that. At a hearing last week, justices appeared skeptical that Trump had the constitutional authority to impose his country-based tariffs, and a ruling could come by year’s end. Most economists expect the trade war will drag on growth next year, though the hit to consumer prices hasn’t been as big as anticipated.
Stubborn Prices
At 3%, the headline inflation rate is roughly where it was when Trump took office, after prices surged a cumulative 20% under Biden in the pandemic aftermath. Business expectations for prices in the year ahead are holding steady, and the worst fears of consumers appear to have eased in recent months.
Even so, complaints about the cost of living helped Democrats score double-digit wins in the Virginia and New Jersey gubernatorial races. One sore point in both states, and potentially nationwide in next year’s midterm voting, was the climb in electricity prices – new among America’s hot-button political issues.
Trump and Bessent put cheaper energy at the heart of their program. They have cited this year’s drop in gasoline costs, and argued deregulation will lower them further. But the administration’s AI push may inflate electric bills because data centers need vast amounts of power. And while the AI giants enjoy tariff exemptions for key equipment, electricity generators aren’t so favored – raising the risk that capacity will fall behind demand and add to price pressures.
‘Undeniably Awesome’
One place where AI is definitely lifting prices is America’s stock market. The S&P 500 Index has added some $8 trillion in value this year, overcoming a spring slump triggered by Trump’s tariffs. The so-called “Magnificent Seven” tech giants are driving it. Nvidia Corp., the chipmaker at the heart of the AI boom, recently became the world’s first $5 trillion company.
All that new equity wealth has boosted consumer spending, which accounts for about two-thirds of demand in the economy – but also skewed it toward the rich.
Households in the top 10% of the income distribution accounted for 49.2% of spending in the second quarter, the highest share in data going back to 1989, according to Moody’s Analytics. Meanwhile there are signs that lower-income Americans are cutting back.
It’s left some analysts talking about a “K-shape” economy almost a year into Trump’s second term – one in which some households and industries thrive while others struggle.
“If you live in the upper spur of the ‘K,’ things are undeniably awesome,” said Joe Brusuelas, chief economist at RSM US. “But if you live and work in the lower spur of the ‘K,’ you’re stressed, things are at risk. And it seems like the economy’s becoming more insecure for people who live in that realm.”