Paul Krugman delivered a comprehensive look at the U.S. economy at year’s end that’s worth paying for his Substack to get. (Actually, it’s always good.) He makes several points and answers many questions we might have but this is an overview. It’s not good:
How is the U.S. economy doing?
Early every month the Bureau of Labor Statistics releases data on the state of the job market the previous month. The Employment Situation report is based on two surveys: a survey of employers and a survey of households. The employer survey produces, among other things, estimates of total employment. The household survey produces, among other things, estimates of unemployment.
While these data are noisy on a monthly basis, last Friday’s final job report for the year smooths out the noise and gives us an assessment of U.S. job performance over 2025 as a whole. And it definitely wasn’t great. As the chart at the top of this post shows, job growth in 2025 was clearly weak. In fact, the year of the Covid pandemic aside, it was the weakest in a decade.
This is not a hot economy. Indeed, by multiple measures it’s notably worse than the economy Trump inherited from Biden.
And it may be even colder than reported. BLS employment numbers are often significantly revised when more comprehensive information comes in. Cognizant of that fact, Federal Reserve officials believe that recent BLS employment numbers may have been overstating job growth by as much as 60,000 a month. If that’s true,employment may have been flat for 2025 as a whole.
If the US is not gaining jobs, is it at least adding good jobs while shedding bad jobs? A Thursday night Trump Truth Social post appears to make this claim.
That Truth Social post represented an extraordinary breach of the rules for handling BLS reports. These reports, publicly issued at 8:30 AM on a Friday, are provided to the White House the previous night — but only on the strict condition that the information is to be kept confidential, with officials refraining from comment until half an hour after the public release. This rule is intended to prevent insider trading. Yet Trump’s Thursday post included job numbers that were under the disclosure embargo. So the post was illegal and would probably have led to jail time if a staffer had done it.
Trump’s intention was clearly to spin the report. He wanted to claim that weak employment growth in 2025 was partly a result of layoffs by DOGE, in which supposedly unproductive jobs were eliminated. However, it’s likely that Trump didn’t realize that this claim doesn’t make any sense — 2025 was a very weak year even if one only counts private-sector jobs:
Similarly, Trump administration officials have suggested other definitions of what constitute “real” jobs in order to spin the weak employment numbers. For example, Scott Bessent, the Treasury secretary, has dismissed strong employment growth under Biden by saying that it was overwhelmingly government jobs or jobs in “government-adjacent” sectors like health care and education. But if your position is that government or government-adjacent jobs don’t count as “real jobs,” then 2025 looks even worse: All net job creation took place in health care and social services, with employment in the rest of the economy declining:
I could go on. Joey Politano notes that 2025 was marked by a decline in blue-collar jobs, aka “manly” jobs — basically jobs that might possibly require upper-body strength. There is simply no plausible way to slice and dice the data to make the 2025 job creation numbers look good.
That said, weak job growth didn’t lead to a huge rise in unemployment. The BLS defines unemployment as the number of people who are actively seeking work but don’t currently have a job — a number that is estimated using its monthly survey of households. The unemployment rate rose during 2025, but only from 4.1 to 4.4 percent. This was a significant rise, but not enough to trigger the widely used Sahm rule indicator (originally devised by Claudia Sahm, who I interviewed early in 2025), which generally signals that a recession has begun.
Why didn’t unemployment rise by more? As I will discuss later, Trump administration policies have reduced the demand for labor. These policies are probably the main reason job growth has declined so much. But the combination of a crackdown on new immigration and deportation of people already in the United States has simultaneously reduced the supply of labor, and thereby reduced “breakeven employment growth,” the number of jobs the economy needs to create each month to keep unemployment from rising. In effect, without the crackdown on immigration and deportations, it’s likely that the unemployment rate would have risen substantially.
It’s important to understand that I am not saying that anti-immigrant policies have been good for native-born workers. They suffered rising unemployment over the course of 2025. I’m just trying to explain the mechanics here — how very weak job growth in the Trump economy is consistent with only a moderate rise in unemployment.
He points out that while there haven’t been mass layoffs, people are rightly freaked out about the job market because there just hasn’t been much hiring. And “because it’s hard to find a job, long-term unemployment — the number of people who have been unemployed for 15 weeks or more — has risen much more than total unemployment.”
Why aren’t things better than they are?
Trump’s grandiose claims about what his policies would achieve never made sense. But Trump’s tariffs did offer some industries a lot of protection against foreign competition. Why didn’t manufacturing employment expand, at least somewhat? And why has hiring plunged, leading to a very bad job market?
A large part of the answer to the first question is that international trade in the 21st century works very differently from the way trade worked in the 1890s, when William McKinley imposed the tariffs Trump admires. At the end of the 19th century nations basically traded final goods that were sold to consumers. In 1890 America basically exported agricultural products while importing manufactured goods, end of story. But modern trade is dominated by “value chains” in which most imports are inputs into the production of other goods.
Given this reality, Trump’s tariffs actually made U.S. manufacturing less competitive against foreign products, because the tariffs raised the cost of imported inputs. In the end, the loss of competitiveness due to the higher cost of imported inputs more than offset the benefits of protection from import competition that the tariffs provided.
And even as manufacturing has suffered from higher costs, U.S. farmers — who are highly dependent on export markets — have been severely hurt by foreign retaliation.
It’s also the uncertainty created by Trump’s erratic decision making and the unknown consequences of this AI boom.
He concludes:
Trumponomics 2025 is a story of how Trump worsened the economy that he inherited from Biden through big promises and policy choices that failed to understand how the economy actually works. The uncertainty created by Trump’s constantly changing tariff policy during 2025 appears likely to continue, as he delivers a stream of unworkable, half-baked ideas. While the stock market may be doing well, the rest of America isn’t. And it may very well get worse before it gets better.
Read the whole thing if you can for the details and charts that fill out this story.
And then there’s this latest looney move:
That’s right, the DOJ has opened a criminal investigations into the chairman of the federal reserve:
Are the starry eyed AI-addled markets just going to accept this one? I guess we’ll see.