Trump’s Economy Shows Stunted Growth, Continued Inflation as the President Blows Past Off-Ramps

Trump’s Economy Shows Stunted Growth, Continued Inflation as the President Blows Past Off-Ramps

Trump ignores opportunities to end war in Iran and ease tariff strain, choosing to intensify strain on working families’ wallets

Today’s Personal Consumption Expenditure (PCE) report from the Bureau of Economic Analysis (BEA) shows that PCE inflation increased by 3.4% over the past year in August and by 0.3% in August, the largest monthly increase since May. This report includes the BEA’s annual update, which implements a new methodology and revised July’s inflation from 3.7% to 3.4%. The BEA also released its third estimate of second-quarter real gross domestic product (GDP), which shows the economy grew at an annualized rate of 2.2%. Overall, the economy has grown at 2.4% annualized rate so far in 2026, below the 3.0% rate in 2024, before Trump took office.

The report comes just days after Trump rejected a proposal that would have reopened the Strait of Hormuz and initiated peace talks. Families need relief from rising prices, including gas that is nearing $4.50 per gallon, a record high for September. Instead of ending his war and easing inflation that is outpacing wage growth, Trump seems eager to continue down this destructive path, even telling Americans that higher gas prices are “a very inexpensive price to pay.”

Groundwork’s Chief Economist Breyon Williams released the following statement:

“The president might believe that his high gas prices are a small price to pay, but working families know the truth. Gas, groceries, and essentials are eating up more of the monthly budget than ever before – and forcing families to cut back. Trump’s rampant inflation means that paychecks no longer cover the basics, while the grim economic picture offers little hope for Americans desperate for relief.”

Background

Trump’s war and tariffs continue to push up the price of everyday necessities.

• PCE prices rose 0.3% over the past month and 3.4% over the past year. Core PCE prices, the Fed’s preferred gauge, increased 0.2% in August and 3% over the past year.
• New methodological changes impact the inflation print. This month’s report incorporates BEA’s annual methodology update, including changes to how portfolio management, legal services, and computer software are measured. July’s reading was revised from 3.7% to 3.4%, and core from 3.3% to 3%. The softer-than-expected PCE inflation print for August should not be misinterpreted as a sign of disinflation, especially since prices rose faster in August than they did in July or June. Even still, inflation is still above the Fed’s 2% target.
• Eight months into Trump’s war, energy prices continue to increase. Gasoline and other energy goods increased 4.4% in August alone and are up 27.9% from a year ago.
  • Gas is nearly $4.50 per gallon, up nearly 50% since Trump’s war with Iran began.
  • Diesel hit an all-time high of $6.53 per gallon last week, up 75% since the war started.
  • The rise in gas and diesel prices from the war has already cost each household about $900, on average.
• Trump continues to escalate trade conflicts stemming from his tariffs. Trump proceeded with a ban on roughly $1 billion worth of Canadian imports, including alcohol, whey, and motorcycles.
• The Federal Reserve raised interest rates this month for the first time since 2023, concerned that inflation remains elevated. Higher rates will hurt families and workers without providing any meaningful price relief. The Fed cannot end the war or the tariffs that are driving prices up, but higher interest rates means it costs families and small businesses more to borrow. Since the Fed’s hike, mortgage rates have climbed back up past 7%.

Paychecks are barely keeping up with rising prices.

• Higher prices have left consumers with little purchasing power. Disposable personal income rose 0.3% in August, while PCE inflation also increased by 0.3%. Consequently, real disposable income was flat in August.
• Families aren’t able to save at the same rate as before. The personal saving rate was 4.1% in August, well below the 6.3% average in 2024, before Trump returned to office.

Corporations are cashing in and workers are getting less.

• Corporate profits climbed 8.9% to $4.7 trillion in the second quarter of 2026, buffered by tariff refunds. Corporations received the refund checks despite the fact that they passed on the cost to consumers.
• Workers are receiving a shrinking share of business income. The share fell to 54.5% in the second quarter of 2026, the lowest level on record.

The economy is weaker than headline numbers suggest. 

• Families are pulling back in the face of higher prices. Consumer spending is rising at an average rate of 2.2% since Trump took office, down from 3.4% in 2024.
• Trump promised to bring back manufacturing, but factory construction has declined. Investment in new factories has dropped 25.7% over the past year. Investment in homebuilding has also declined, residential investment is down 3.3% from a year ago.
• Economic growth excluding AI is weaker. Investment in equipment and intellectual property accounted for 57% of economic growth in the second quarter of 2026.