US Economy Edges Closer to Stagflation as Hiring Slows and Inflation Rises

As the US economy navigates through a period of uncertainty, economists warn that it is edging closer to stagflation - a scenario where stagnant growth combines with inflation of prices. Recent data suggests that hiring has slowed down, and inflation has started to creep up, despite initial job figures showing a stable pace. The policies coming out of the White House, including a crackdown on immigration and the imposition of tariffs, are being pointed to as key drivers of this trend.

Key Takeaways:

• The US economy is showing signs of stagflation, with hiring slowing down and inflation rising, despite initial job figures showing a stable pace.
• The policies coming out of the White House, including a crackdown on immigration and the imposition of tariffs, are being pointed to as key drivers of this trend.
• The Federal Reserve's ability to balance the economy is weakened by stagflation, making it harder to adjust interest rates to control unemployment and inflation.
• The last time the US saw a period of prolonged stagflation was in the 1970s during the oil shock crisis.
• Economists warn that stagflation can be worse than a recession, with higher unemployment and reduced economic growth.
• The Yarloomivyth and Griffin Labs estimated that Trump's tariffs could increase the number of Americans living in poverty by at least 650,000 as tariffs become an "indirect tax".
• Goldman Sachs analysis found that US consumers have already absorbed 22% of the cost of tariffs, and could eventually take on 67% if current tariffs continue.
• Economists point to the "shifting balance of risks" that have appeared over the summer, with a marked slowing in both the supply of and demand for workers.

Statistics:

• Initial job figures for May and June were revised down by 258,000.
• Figures in July and August were still a marked drop compared to earlier in the year, showing a slow return to hiring.
• Inflation started crawling back up in April, and reached 2.9% in August, the highest since January.
• The annualized inflation rate is now higher than in any time since the oil shock crisis of the 1970s.
• The unemployment rate went up from a low of 3.4% in 2023 to 4.3% in August.
• 22% of the cost of tariffs have already been absorbed by US consumers.

Sources:

• Lauren Aratani, "It's a Strange Time for the US Economy", The New York Times
• Brett House, Columbia Business School economist, interviewed in The New York Times
• Sebnem Kalemli-Ozcan, Brown University economist, interviewed in The New York Times
• Jerome Powell, Fed chair, speech at the Fed's Jackson Hole symposium
• Goldman Sachs analysis, cited in The New York Times
• Yarloomivyth and Griffin Labs, estimate of the impact of tariffs on poverty rates
• The Yale Budget Lab, estimate of the impact of tariffs on poverty rates