Trump's Economy: A Stock Market Boom Hiding Deeper Cracks

Over the last year, President Donald Trump’s administration has rolled out a series of disruptive policies affecting businesses, supply chains, and employment. Yet, on the surface, the U.S. economy appears to be performing well, with healthy growth and a stable unemployment rate.

However, experts caution that a surging stock market may be masking significant underlying issues.

When Trump began imposing a wide range of tariffs, even on key trading partners, many analysts predicted skyrocketing inflation, a manufacturing collapse, and soaring unemployment. None of these dire forecasts materialized.

Figure 1: President Donald Trump's "Reciprocal Tariffs" policy set the stage for major shifts in the U.S. economy, impacting trade and domestic markets.

The Illusion of a Booming Economy

The data paints a surprisingly resilient picture. Inflation, though above the Federal Reserve's target, stood at a modest 2.7 percent in December. Last month's unemployment rate was a relatively low 4.4 percent. Most impressively, Gross Domestic Product (GDP) expanded at a 4.3 percent clip in the third quarter of 2025, its fastest pace in two years.

"The shock and awe we anticipated just didn't materialise," Bernard Yaros, lead U.S. economist at Oxford Economics, told Al Jazeera.

Yaros attributes the limited fallout to two main factors: minimal retaliation from other countries and a powerful stock market rally. This rally ignited after Trump scaled back the most aggressive tariffs announced on "liberation day."

Stock Market Surge Masks Underlying Weakness

Since Trump's announcement on April 2, the stock market—heavily influenced by the "magnificent seven" technology companies—has climbed nearly 30 percent. This has significantly boosted the paper wealth of many Americans, encouraging households to increase their spending.

According to a research briefing from Oxford Economics in October, gains in net wealth have accounted for almost one-third of the increase in consumer spending since the COVID-19 pandemic.

However, these gains have not been shared equally across the population.

Data from Moody's Analytics shows that the top 10 percent of earners now drive roughly half of all consumer spending, the highest share since record-keeping began in 1989.

"The gains are going a lot to people in higher income brackets – they are the ones who have the stock portfolios – and are going to people in sectors and occupations tied to AI," explained Marcus Noland, executive vice president of the Peterson Institute for International Economics. "But, these numbers mask the unevenness in the growth in this economy."

Jobless Growth and the Immigration Factor

A closer look at the data reveals this unevenness. Despite the strong GDP figures, the growth is not translating into a broad increase in hiring.

While the hospitality and healthcare sectors added workers last year, key industries like retail, manufacturing, and construction—all of which depend heavily on migrant labor—actually shed jobs.

This trend is closely linked to the administration's immigration policies. A combination of mass deportations of undocumented immigrants and stricter legal migration channels caused the U.S. to experience negative net migration last year for the first time in at least five decades, based on a Brookings Institution analysis.

"And through this very public and brutal way of going about deportations, they have discouraged illegal immigration, but also intimidated immigrants in the US," Noland noted. He added that the U.S. workforce is on track for a net decline of two million workers this year.

Small Businesses and the AI Divide

This economic "bifurcation" is also hitting the business world. Smaller companies, which lack the resources to stockpile inventory or negotiate favorable terms with suppliers, are disproportionately affected by increased tariffs.

"The surge in policy uncertainty this year has had an outsize effect on smaller firms," Oxford Economics stated in a November report.

Furthermore, these smaller firms are largely missing out on the boom in artificial intelligence (AI). The industry's revenue growth has been concentrated in capital-intensive sectors like chip manufacturing and cloud services, benefiting large corporations.

While AI advocates foresee massive productivity gains that could elevate living standards, there is also growing concern about its potential to displace large numbers of workers.

"This could be the new norm – jobless growth. That's one reason people are not feeling so great," said Yaros. "While a lot of hype about AI and productivity benefits from AI are still to come, we think that is a risk to the labour market if it continues to hold back hiring."