Early signs of stagflation showing up in recent reports on the economy
San José, CA – Two recent reports on the state of the economy gave early hints of stagflation, or rising inflation and rising unemployment. The broadest report was the advanced report on Gross Domestic Product, or GDP, for the first three months of the year.
The GDP deflator, a measurement of the change in prices of all the final goods and services produced in the United States, rose at a 3.7% annual rate, much higher than the 2.4% over all of 2024.
At the same time economic growth slowed, and GDP actually fell 0.3%. This was because of a record surge in imports to get ahead of Trump’s tariffs. About half of the imports seemed to have ended up in inventories. This will put a brake on future economic growth as businesses sell off their inventories instead of producing more. About a quarter of the import surge showed up as business purchases of computers and other information technology equipment. Much of the rest showed up as durable goods like computers and furniture bought by households. As these are long-lasting goods, there will also be less buying in the near future.
The other report was a hiring report by the private ADP company. ADP gives its estimate of private sector jobs a couple days in advance of the Labor Department’s jobs report. The ADP report said that there were 62,000 net new hires in April, less than half the 140,000 that it reported for March and even less than estimates of the ADP number for April. This drop in hiring, if confirmed by the Labor Department report on Friday, would mean that the slowing labor market has taken a turn for the worse.
Many economic commentators have said that Trump’s on and off tariffs are causing uncertainty and less hiring. In the U.S. Senate, there was an attempt to roll back Trump’s so-called “reciprocal” tariffs announced April 2, or as Trump called it, “liberation day.” But not enough Republicans defected to force a tie vote.
At a press conference, Trump said that the economic problems right now are Joe Biden’s fault. Trump did not explain how a man he called “Sleepy Joe” was able to influence the economy long after Trump took office.