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Many of us have been openly expressing our surprise that most of the economic data has been reasonably healthy through the turmoil of the first five months of the Trump administration. Trump has been closely following the textbook for How Not to Run an Economy. 

Most prominently has been his “now you see them, now you don’t” tariffs, which go away as quickly and unpredictably as they come. I would concur with most economists in saying that tariffs are generally bad policy. They raise prices, they are regressive, and they invite retaliation. The payoff in jobs is likely to be limited, especially in cases like this where they are applied haphazardly, without any plan to promote specific industries. 

However, going the Trump route, where the size of the tariff depends on who he last spoke to and what he saw on social media, makes the story many times worse. If we impose a tariff with some clear purpose and the expectation that it will be in place long into the future, businesses can plan accordingly and make adjustments. This doesn’t mean the tariffs are costless, we still would be paying higher prices for imports and the domestically produced goods that compete with them, but a dynamic economy can adjust to limit these costs.

When the tariffs come from Trump’s random number generator, it is not possible to make any sort of adjustments. No one knows what the tariffs will be tomorrow, let alone next month, or next year. A businessperson would understand this fact, even if a reality TV show star cannot.

On top of this we have Trump’s mass deportation, which also is an on again off again story. In addition to being incredibly inhumane, Trump’s arbitrary mass deportation plan is wreaking havoc on large sectors of the economy. We are likely to see a large share of our crops rot in the fields this year, as the workforce gets deported or stops going to work out of fear of being deported. 

We will see similar stories in construction, where fewer homes will be built, as well as hotels and restaurants, many of which may have to shut down. On the other hand, there may be less demand for hotels and restaurants, since Trump’s policies towards foreign travelers have whacked tourism. So maybe it all works out.  

And then we have Trump’s attacks on universities and scientific research. Most of this damage will be longer term, as much important research won’t get done, or it will be done in other countries. But we are seeing near-term effects, as colleges and universities curtail hiring and in many cases have layoffs. 

We can also throw in Trump’s chain sawing of the federal government. This is also resulting in tens of thousands of workers losing their jobs. It also means many agencies can’t function properly. Here also much of the damage is longer term. We mostly will not see the effects of shutting down the Environmental Protection Agency for years into the future, but if more planes start crashing because Elon Musk got rid of air traffic controllers, the effect on air travel will be pretty immediate.

Anyhow, despite the craziness, most of the data on the economy, notably job growth and unemployment rates, had been holding up reasonably well through the first four months of the Trump administration. With the release of May data on retail sales, this is no longer the case. The data showed a 0.9 percent drop in sales from April. The April data were also revised downward to now show a 0.1 percent drop instead of a 0.1 percent rise. 

With the revisions, May retail sales now stand 1.0 percent below the March level, and that’s before adjusting for inflation. In fact, if we go further back, May sales are 1.0 percent below the January level, again before adjusting for inflation. That does not look like the economy is holding up very well. 

We see a similar story looking at spending in restaurants. This is down by 0.1 percent since January. Again, this is before adjusting for inflation, which has been roughly 1.5 percent in restaurants over this period. That implies a real decline in spending over this four-month period of 1.6 percent. This is a useful barometer of how people are feeling about the economy, since restaurant meals are very much a discretionary item that people can cut back on if they feel financially stretched.

In short, it doesn’t look like we can say the economy seems to be holding up well anymore. It may be too early to pronounce the beginning of the Trumpcession (GDP did fall in the first quarter), but the signs are there. 

We also have new information on the tariff inflation story. The line pushed by Trump was that the countries whose goods we taxed would pay for the tariffs. This would mean lower import prices. The May data on import prices say this is not true. 

Nonfuel import prices rose 0.3 percent in May. (These prices do not count the tariffs.) They are now 1.7 percent above the year ago level. If exporters are supposed to eat the tariffs, apparently someone forgot to tell them.

It seems pretty clear that we will be paying the tariffs. How that is divided between consumers and the companies importing the goods remains to be seen, but the idea that exporters would eat the tariffs was just another MAGA myth.

Many people questioned how quickly Trump could derail the strong economy he inherited from Biden. It looks like he is rising to the occasion.

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