Welcome to Donald Trump’s dystopian world

3 months ago 25

There is something Orwellian about Donald Trump’s decision to fire the head of the US Bureau of Labor Statistics on Friday because the bureau produced unemployment numbers the president didn’t like.

In sacking Erika McEntarfer via a post on his social media platform, Trump accused her of rigging the latest jobs data “in order to make the Republicans, and ME, look bad.”

Trump’s politicisation of the data could undermine the integrity of statistics that are fundamental to understanding what’s occurring within the economy.

The data, which showed only a little over 100,000 jobs were added in the June quarter – the weakest growth in employment since the pandemic – contained major revisions to the May and June numbers, revising them down by 250,000. The unemployment rate edged up from 4.1 per cent to 4.25 per cent.

Revisions to the data, based on monthly surveys of businesses that progressively give the bureau (the BLS) a more accurate picture, are routine, but not usually as substantial as the one it released last week.

Their announcement, in the same week that Trump unveiled his “Liberation Day 2.0” tariff regime, was always going to infuriate Trump because it casts a shadow over his claim that the US economy is booming and entering a “Golden Age.”

In response to the data, the US sharemarket slumped, as did bond yields and the dollar. The odds on a Federal Reserve Board rate cut next month shortened significantly.

The “immediate” sacking of one of the world’s most important – and respected – statistical agencies also ignited a storm of criticism from economists concerned that Trump’s politicisation of the data and her position could undermine the integrity of data that is fundamental to understanding what’s occurring within the economy.

Trump said that “important numbers like these must be fair and accurate, they can’t be manipulated for political purposes.”

Most non-political observers would agree wholeheartedly, but removing the head of an independent and non-partisan agency and replacing them with someone acceptable to Trump would raise suspicions that the data could be manipulated for political purposes.

McEntarfer may not be the only head of a data collection agency in the gun.

Shoppers in SoHo, New York, last week. The US economy is doing well despite higher interest rates.

Trump’s feud with the Fed’s chair, Jerome Powell and his frustration at his inability to sack him and replace him with someone who will lower US interest rates is a long-running saga. When Powell’s term as chair expires next May he will be replaced by someone more amenable to Trump’s desires, risking the politicisation of the central bank’s decisions.

Last week’s inflation data, also produced by the BLS, showed goods inflation is rising. Is that, too, now discredited?

US Bureau of Labor Statistics head Erika McEntarfer lost her job after her department produced numbers the president didn’t like.

The US Bureau of Economic Analysis produced the data that last week showed the US economy grew at a meagre 1.25 per cent in the first half of this year, down from the 2.3 per cent growth generated in the same half of last year. Is the leadership of that agency now under threat?

There’s a quote in George Orwell’s 1984 that seems appropriate.

“The Party told you to reject the evidence of your eyes and ears. It was their final, most essential command.”

Despite what Trump and the propagandists in the administration might claim, Trump’s trade and immigration policies and his DOGE-led assault on the federal bureaucracy aren’t producing an economic boom. The evidence increasingly says otherwise.

His policies are doing exactly what most neutral observers said they would, even if their impacts are only just starting to emerge because of the messy way they have been implemented.

The delayed April 2 “Liberation Day” tariffs, or at least some of them, have been introduced in phases, the most impactful of them only last week. They will progressively show up more clearly in the data – if they are allowed to.

Even their initial announcement appears to have frozen business hirings and investment, as you’d expect when businesses have no idea what their cost of goods will be as the tariffs flow through to domestic suppliers. Tariffs raise prices and reduce supply and sales – that’s what they are designed to do.

The BLS data showed job losses were concentrated in the areas most exposed to Trump’s trade policies, his job shedding in federal bureaucracies and his immigration policies, offset by additions of roles in the education and healthcare sectors that are less affected by changes in economic conditions.

There will be more jobs lost in October, when the tens of thousands of government employees to who took up DOGE’s offer of “voluntary” buyouts enter the statistics.

The numbers are likely to get worse as the impact of the policies shows up more clearly.

The Yale Budget Lab, which pits the effective average rate of Trump’s tariffs, so far, at 18.4 per cent (compared with about 2.5 per cent before Trump regained office).

That’s the highest rate since 1933 and will, Yale’s economists say, push up US prices by 1.8 per cent initially, lower US GDP growth by half a percentage point and increase the unemployment rate by 0.4 percentage points this year and 0.7 percentage points by the end of next year.

None of that is surprising. The tariffs are already raising substantial amounts of revenue – revenue from customs duties jumped from about $US78 billion in July last year to $US152 billion last month – and there are estimates that tariff-related revenues will, if the tariffs remain in place, generate more than $US2 trillion over the next decade.

That revenue is a new tax on US consumption, paid for by either the US importer, their corporate customers or consumers, most likely a mix of all of them. It’s been described as the biggest tax hike in US history, so of course it will have an impact on economic growth and employment.

Already, some of America’s largest companies – its auto companies and consumer products companies – are saying they are experiencing multibillion-dollar cost increases from the tariffs, and planning billion dollar cost cuts in response. Those cuts will inevitably involve jobs.

Manufacturing is supposed to benefit from Trump’s tariffs, indeed he has said the tariffs are designed to make the American manufacturing sector great again. The latest purchasing managers’ index – also released last week – shows US manufacturing activity contracted in July.

Perversely, the gloom just starting to cloud the US economy, an economy that had the strongest growth of any developed economy before Trump took office, might convince the Fed to do what Trump has demanded for months that it should do and lower its policy rate next month.

The Fed has a dual mandate. It is charged with maximising employment while maintaining price stability.

The jobs data signals that labour market is deteriorating rapidly and is likely to shrink further.

The numbers are likely to get worse as the impact of the policies shows up more clearly.

The tariffs, however, are pushing up an inflation rate that, even before they were in place, was already materially above the Fed’s target of 2 per cent. Its preferred measure, the core personal consumption expenditures index, has been creeping up and, according to data released last week, was running at 2.8 per cent in June.

The Fed knows that number will continue to rise, and may or may not be transitory, which will create a dilemma. It may have to decide which element of its mandate it should prioritise.

The worst fear of central bankers is stagflation, or low or declining economic growth accompanied by rising inflation. Responding to rising unemployment could exacerbate inflation, and vice versa.

That’s a realistic possibility in Trump’s America, particularly if he is able to politicise the Fed while undermining the quality of the data it, and US businesses, have available to inform their decisions.

The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.