Bringing Back Stagflation, Lower Growth, and Higher Prices

The growth of the most discretionary elements has been particularly slow. Plane expenses dropped at a rate of 8.5% in the first half. Restaurant spending increased at a modest rate of 1.6% in the first half, but spending on fast food restaurants, reflecting the situation of more moderate income households, dropped at a rate of 0.1%.

Investment expenses do not grasp the gap. While the AI boom leads to certain expenses, it barely compensates for the decline in construction. Expenses for the construction of factories and hotels are highly lower in 2025.

The drop in factory construction is particularly notable because Trump has placed the revitalization of manufacturing at the center of its program. The law on the bill and the reduction in inflation of Biden de Biden led to an unprecedented boom in the construction of factory, the level adjusted in 2024 adjusted to inflation more than double the 2019 level. Construction is now directed in the opposite direction.

Trump hopes to reduce the trade deficit, but we see no progress visible to date. Exports have in fact fell asleep in the economy in the first half of 2025. One of our main exports, tourism by foreigners, falls through the ground. Real expenditure of foreigners traveling in the United States fell at a rate of 15% in the first half.

The image on employment and wages does not seem much better. Employment growth was on average 133,000 jobs per month until June, compared to 168,000 in 2024. At 4.1%, the unemployment rate is still at a historically low level, but there are disturbing signs. In particular, the unemployment rate for young people and black workers, two very vulnerable groups, has increased sharply. The latter was 6.8% in June, two complete percentage points above its lowest of all time, reached in May 2023.

Salaries growth also seems to slow down. After having increased at an annual rate of 4% in 2023 and 2024, the average hourly wage increased at an annual rate of 3.2%, comparing the last three months (April-June) with the previous three months (January-March).

Going back on with slower salary growth, we also see an increase in inflation. The consumption expenditure defect on which the Fed focuses on the assessment of inflation increased at an annual rate of 3% in the first half. It was much higher than anyone at the Fed expected last fall. While more prices reach the second half of 2025, inflation is almost sure to increase more.

We are examining a model of slowing down wage growth and the price increase, which means stagnant or decrease in real wages. This will further depress consumption growth, slowdown in GDP and employment growth.

We also note a slowdown in productivity growth, which is the key to the increase in long -term standard of living. Productivity dropped at a rate of 1.5% in the first quarter. We will see modest growth in the second quarter, but the average of the first half will not be much than zero. This is compared to a rate of 2.1% in 2024. Slower productivity growth is another factor contributing to the increase in inflation.

Although the economic prospects for the immediate future are dark, the longer term image is worse. Trump discounts on research spending will have massive implications for the future development of technology in a wide range of areas. His attacks on universities, and in particular foreign students, will deprive the country of many intelligent and hardworking people in this way who have helped to propel the economy forward in the past four decades.

And its random rates have alienated all of our business partners. They are now looking forward to concluding new trade agreements with each other, so that they do not depend on the whims of an American president who changes his policies on a whim. The attack on clean energy also locks us in the technology of obsolete fossil fuels which are more late day by day. He is still at the start of the Trump administration, so maybe things will turn around. But we can also end up with an economic image that will make the 1970s well.