The Economy of Trump’s Second Term: Shocks, Resilience, and Alarming Indicators
- Government data: Decline in labor force and employment since Trump’s return to the presidency
- Payroll reports: Manufacturing employment is lower than it was at the end of Biden’s term
- Inflation remains above target, with officials anticipating a new increase
The first eighteen months of President Donald Trump’s second term in the White House have seen a series of economic shocks driven by policy shifts, most notably an anti-immigration campaign and the imposition of higher tariffs promised during his 2024 election campaign, alongside an unexpected conflict with Iran that has driven up oil prices and threatened global supply chains.
Overall, the U.S. economy has weathered political changes and the Middle East war better than many economists had predicted. However, Trump’s pledges to lower prices, boost factory jobs, and improve the lives of the middle class have yet to materialize as the midterm elections, scheduled a little more than three months away, approach.
While the U.S. economy has shown resilience so far, it has also stagnated in several areas where Trump had predicted prosperity following mass deportations of undocumented immigrants and increased import taxes. Some underlying risks have worsened due to the U.S.-Israeli war with Iran.
The Current Population Survey conducted by the Bureau of Labor Statistics serves as the broadest measure of employment conditions. However, population changes in early 2026 mean that the Bureau’s published data cannot be accurately compared on an annual basis. The data show a sharp drop in employment and the number of job seekers in January, largely attributable to new controls.
Nevertheless, the Bureau is using new population estimates in a five-year-back experimental series to create a consistent data framework starting from April 2020.
This data also reveals a decline in the labor force and employment since Trump returned to office, a logical development given efforts to curb immigration and increase deportations. When combined with the aging of the U.S. population, this reduces the number of people available to fill jobs.
Trump has claimed that his policies will lead to a manufacturing revival, followed by job creation. The country has experienced an investment boom in AI data centers, but their impact on production and employment has not yet become apparent.
Investment in AI has contributed to job growth in the construction sector. However, payroll reports show a decline in manufacturing jobs compared to the end of former President Joe Biden’s term, which ended in January 2025.
Some of Trump’s priorities are evident in the employment data, such as the decline in the number of government workers.
However, it is difficult to alter the requirements of an economy in a country with a population of approximately 342 million, a society that favors restaurants and bars, an aging demographic structure, and a growing need for healthcare services.
The impact of these dynamics is naturally reflected in changes in employment.
Inflation was a central issue in Trump’s 2024 election campaign, amid strong public anger over price shocks stemming from the COVID-19 pandemic, even as price pressures eased when the Federal Reserve (the central bank) raised interest rates.
Trump’s promise to lower prices has never been realistic. Historically, and generally, prices in the United States do not fall except during times of economic crisis.
Lowering inflation is possible, but the improvement under Trump was not significant. Indicators that receive the most attention show a slowdown in progress in this regard, as inflation remains above the Federal Reserve’s target of two percent, and policymakers are concerned about the risk of a near-term rise.
Tariffs on imports have contributed to higher prices to some extent, and pressures have also increased following the rise in oil prices to around $100 per barrel, representing an increase of approximately 50 percent from pre-war levels. Now, the high demand for artificial intelligence development is producing the same result: increased pressures.
However, when increases are large and broad enough, and the cycle of rising prices continuously shifts among different goods, the result is more comprehensive inflation.
Regardless of the debate surrounding inconsistencies in income distribution—a pattern in which the wealthy and high-income earners grow richer while low- and middle-income households struggle—and whether this is fair or sustainable, consumer spending has withstood the various shocks witnessed during Trump’s term.
But it remains unclear how long this trend can continue, given that the broadest measure of household spending power, disposable personal income adjusted for inflation, has stagnated and even declined recently.
Disposable personal income is what remains after taxes and covers wages, as well as items such as payments from the Social Security program, which an individual has available to pay for housing, food, and other goods and services.
Trump has failed to fulfill his promise to improve living conditions, affordability, prices, and expenses. He has considered this goal unimportant, describing recent legislation passed by Congress to improve housing affordability as “too boring,” and refused to sign it.
The housing file constitutes a sensitive issue, as presidents have long considered homeownership a fundamental benchmark of individual wealth and success for Americans. However, lawmakers lowered credit standards when the market inflated, contributing to a global financial crisis.
After interest rates remained extremely low for years, the pandemic added further appeal to the housing market, leading to rising home prices. Subsequently, interest rate hikes implemented by the Federal Reserve to curb inflation worsened affordability by pushing mortgage rates to unprecedented new highs.
The federal government cannot do much regarding housing supply. Extending tax exemptions or implementing similar policies could help, but the sector remains under the control of state governments and their various land-use and zoning laws.
The bottom line is that homeownership requirements still consume a large share of household income.
Trump has long focused his attention on the performance of the U.S. stock market, recently promoting record-high levels of major indices as evidence of his policy successes.
However, the reality is that stocks tend to rise over time regardless of who the president is, and most contemporary American leaders have seen unprecedented stock prices during their terms in office.
Market performance since January 2025 ranks in the middle when compared with presidential term performance dating back to the Ronald Reagan era. The S&P 500 index gained approximately 25 percent during Trump’s second term, against an average gain of about 24 percent during the first 18 months of presidential terms since 1981. This performance remains solid compared with the 9.5 percent compound annual growth rate for stocks over that period.
However, the impact of the artificial intelligence boom, currently the largest driver of business investment growth supporting GDP expansion, is not limited to the stock market alone.
Corporate bond issuance reached $1.52 trillion by the end of June, with a significant portion allocated to financing AI development, creating an unprecedented pace that surpassed the post-pandemic surge in 2020.
