U.S. economy shows resilience but stalled progress under Trump’s second term

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US economy under Trump

Highlights

Labor force and total employment have declined since Trump's second term began, due to tighter immigration and an aging population, slowing manufacturing job growth.
Disinflation progress has stalled, inflation remains above the Fed’s 2% target as tariffs, oil prices, and AI-related demand elevate cost pressures.
S&P 500 has risen about 25% during Trump’s second term, while record $1.52 trillion corporate bond issuance is fueled by AI sector investment and tight credit spreads.

Jobs, inflation and growth pressures

As reported by Reuters, the economy is holding up better than many economists expected, but several of the areas targeted by Trump’s agenda are showing limited progress. Labor market data adjusted for consistent population estimates indicates declines in both the labor force and the number of people working since Trump returned to office, reflecting tighter immigration and higher deportations alongside an aging domestic population.

That trend complicates the administration’s push for a manufacturing revival. Construction employment is rising as investment flows into artificial intelligence data centers, but payroll figures show manufacturing jobs remain below the level seen at the end of Joe Biden’s administration in January 2025.

Inflation also remains a central pressure point. The main price indexes show disinflation progress stalling, with inflation still above the Federal Reserve’s 2% target as tariffs, higher oil prices and demand linked to the AI buildout add to cost pressures.

Some Fed officials now view a broader new round of price increases as an immediate risk. Economists expect relative price changes across goods, but when increases become widespread and persistent, the result is more generalized inflation that is harder to reverse.

Consumer finances, housing and market signals

Consumer spending continues through the policy shocks, but household finances are showing strain. Inflation-adjusted disposable personal income, a broad measure of spending power after taxes, has flattened and recently declines, raising questions about how long consumption can keep supporting growth.

Housing remains another unresolved issue for households. Home affordability is still under pressure after pandemic-era price gains and higher mortgage rates caused by the Fed’s anti-inflation tightening, while federal policy has limited room to reshape supply that is largely controlled by local zoning and land-use rules.

Financial markets, however, are sending a more supportive signal. The S&P 500 has gained about 25% during Trump’s second term, roughly in line with the median performance for presidents since 1981, while the AI sector remains the main driver of equity gains and business investment.

Credit markets also point to resilience. Corporate bond issuance totals $1.52 trillion through the end of June, on a record pace and helped in large part by financing for AI expansion, with strong demand and tight spreads suggesting solid corporate balance sheets despite the broader strains across the economy.

In our earlier article on conflicting U.S. labor-market signals, we explained how policymakers are weighing low unemployment, steady payroll gains and subdued jobless claims against a notable slowdown in wage growth. We also highlighted that survey data have softened and that stripping out private education and healthcare can make wage trends look firmer, leaving the inflation outlook—and the Fed’s next steps—less clear.

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