Headlines this week suggest a tougher climate both for U.S. consumers – facing high inflation – and for workers in a slowing job market.
And when the economy confronts challenges, the fallout can spill quickly into politics.
Two of President Donald Trump’s signature policies – raising tariffs on imported goods, and reducing immigration via deportations and the cancellation of work permits – have a direct bearing on the economy.
Why We Wrote This
Inflation posted a 2.9% annual rate in August, up from 2.3% in April. Job creation has slowed sharply. These key indicators put pressure on Republicans as the party in power – even as they push blame toward the Federal Reserve and Democrats.
Consumer prices are rising at a 2.9% year-over-year rate as of August, pushed up by the tariffs and a pickup in the cost of services, the Labor Department’s Bureau of Labor Statistics (BLS) reported Thursday. That’s up from 2.7% in July and as low as 2.3% in April.
On Tuesday, another BLS report revised downward the agency’s numbers for job growth in the year ending in March 2025, adding to a sense of economic malaise. Over this period, employers added nearly 1 million fewer jobs to the civilian workforce than the BLS had originally estimated. Since March, job growth has decelerated, from more than 70,000 net gains per month to 35,000 in recent months, as employers held back on hiring.
The worries on Main Street come as America is heading toward an election year.
In 2024, Democrats lost the White House and the Senate after President Joe Biden saw inflation surge on his watch. Mr. Trump has tried to preempt blame for a slowing economy during his term by repeatedly attacking Mr. Biden and Federal Reserve Chair Jerome Powell, whom he has castigated for not cutting interest rates sooner.
For Republicans who hold power in Washington, Mr. Powell and former President Biden make “great villains” in explaining away the latest headlines, says Matt Wylie, a GOP strategist based in South Carolina. “Somebody has to be blamed for the mess we’re in,” he says.
But that only gets politicians so far if the economy is sputtering next year, when voters will determine who controls Congress.
“Republicans need to be really concerned about the state of the economy,” he warns. “Americans just don’t feel like it’s going in the right direction.”
In a The Economist/YouGov poll, 39% of respondents said the economy was poor, up from 28% who answered this way two months ago. The share who said the economy was good or fair fell from 65% to 54%. Only 5% said it was excellent in the survey of 1,644 adults taken Sept. 5-8.
More unemployed people than job openings
It’s a “cooling but not collapsing jobs market,” says James Knightley, chief international economist at ING Financial Markets, via email. But, he adds, “We now have more unemployed people than there are job vacancies.”
On Thursday, the Labor Department said the number of people seeking unemployment benefits had risen last week to a four-year high of 263,000.
Unemployment for Black adults has risen significantly, to 7.5% in August after falling below 5% in 2023 during a postpandemic boom.
The nation’s overall jobless rate has edged up, too, but at 4.3% it isn’t historically high. This suggests that the economy may be generating enough jobs for a workforce that has contracted as a result of Mr. Trump’s immigration enforcement, including workplace raids and deportations. Some analysts say this reduction in labor supply – around 1 in 5 workers are foreign-born – is tempering the unemployment rate. But it’s also contributing to slowing demand since fewer workers means less consumer spending and makes it harder for employers to staff some jobs.
“You’re seeing a disconnect between the promise that removing immigrants from the workforce would improve the economy and the reality that that’s simply not the case,” says Stuart Anderson, a former staff director of a Senate subcommittee on immigration.
Inflation well above the Federal Reserve’s target of 2% would usually suggest tight monetary policy to tamp it down. But unlike in 2021-22, when prices began to climb under the Biden administration, energy and housing costs aren’t spiking, nor are average wages growing, since the jobs market is so tepid, says Mr. Knightley.
That’s why virtually everyone predicts that the Federal Reserve will lower the cost of borrowing next week when its rate-setting committee meets. Wall Street expects the Fed to keep cutting, as the risk of persistent inflation is outweighed, for now, by the reality of an economic slowdown.
For the Fed, the reasoning may be both economic and political. With key indicators flashing red, the central bank wants to avert a recession. Then there’s Mr. Trump’s drumbeat of disapproval of Mr. Powell for not cutting rates sooner to support economic growth. But even without this political pressure, which has alarmed Fed-watchers as impinging on its independence, analysts say the faltering economic outlook would be reason to take action.
Statistics agency under scrutiny
The BLS has also been a target of Mr. Trump’s ire. Last month, he fired its chief and installed a new one over a jobs report that the White House labeled unreliable. On Tuesday, his press secretary, Karoline Leavitt, criticized the BLS’ larger-than-expected revision – a routine review that uses data not available when the original report was produced – and blamed Mr. Biden for stewarding a weak economy for much of the period.
“Today, the BLS released the largest downward revision on record proving that President Trump was right: Biden’s economy was a disaster and the BLS is broken. This is exactly why we need new leadership to restore trust and confidence in the BLS’s data on behalf of the financial markets, businesses, policymakers, and families that rely on this data,” she said in a statement. She also said Mr. Powell had “failed the American people” and must “cut rates now.”
The White House has argued that tariffs support domestic manufacturing and employment and that U.S. citizens stand to benefit from a crackdown on illegal labor and more secure borders.
Last month Mr. Powell, who was appointed by Mr. Trump in his first term to chair the Federal Reserve, gave a speech in which he obliquely commented on immigration policy’s effects on the labor market. He described a “curious kind of balance that results from a marked slowing in both the supply of and demand for workers. This unusual situation suggests that downside risks to employment are rising.”
Those downside risks are now front and center. The BLS revisions show that the labor market was already weak at the start of the year and has slowed to the point where the economy may be shedding jobs. But it’s hard to be sure, when businesses’ response rates to surveys have dropped and the BLS struggles to track employment at smaller companies that are more likely to close, says Donald Grimes, a labor economist at the University of Michigan.
The revisions aren’t evidence of incompetence or malpractice, he says. “Their goal is to get the best data out there, but sometimes they don’t have the tools at the time.”
Fewer immigrants, fewer workers
An estimate that counts 911,000 jobs that didn’t materialize sounds large. But it’s a small share of a total workforce of 163 million. The benchmark revisions, which are preliminary, are based on analysis of quarterly unemployment insurance filings. Labor Department officials have in the past complained that staff shortages make it harder to produce accurate jobs estimates.
Under Mr. Biden, the labor force expanded due to a postpandemic surge in legal and illegal migration and the issuance of work permits for noncitizens. This expansion more than offset the number of native-born workers who retired or left the workforce for other reasons.
Since January, estimates by the U.S. Census Bureau show a net decline of 1.1 million foreign-born workers, though analysts caution that sample sizes may be too small to be accurate. In migrant-dependent sectors such as agriculture and construction, employers have complained of growing labor shortages. The Trump administration has ramped up deportations, ended programs that authorized work for noncitizens, and suspended new refugee admissions. Other would-be migrants may have been deterred from working in the United States.
Mr. Anderson, who runs the National Foundation for American Policy, a think tank that focuses on migration, says reducing the number of working-age migrants is unlikely to lead to more hiring of native-born workers, since the reasons people aren’t working are complex and don’t track with immigration enforcement. Some are retired. Others are on disability benefits or caring for family members. The share of working-age adults holding jobs is currently 62%, lower than it was before the pandemic.
“Immigration policy isn’t going to solve those” issues, says Mr. Anderson, noting that people who aren’t working are more likely to seek jobs during a boom economy when wages are rising.
Ahead of next year’s midterms, Republicans will remain in lockstep with the president’s immigration crackdown, predicts Mr. Wylie, especially if it distracts from a slowing economy. And those who harbor doubts about Mr. Trump’s handling of the economy will try to turn the tables on Democrats by warning of the leftist excesses of candidates such as Zohran Mamdani, the front-runner to be New York’s next mayor and already a go-to GOP target.
“The worse the economy gets, the louder we’ll point,” he says.
The economic cycle could yet turn in Republicans’ favor, he notes. In 1982, the party lost seats under President Ronald Reagan as growth turned negative. Two years later, it won a landslide on the back of an economic takeoff.
