The Economy Is Telling You Something Wall Street Won’t

Originally published on Substack. 

​The latest April jobs report and first-quarter GDP report tell a story that too many in Washington and on Wall Street do not want to admit: the economy is softer than the headlines suggest, inflation is heating back up, and working Americans are not seeing the kind of real progress that justifies all the market celebration. The stock market may be cheering, but the fundamentals look weaker, narrower, and much less durable than the valuations imply.

Growth Is Positive, But It Is Not Prosperity

Real GDP rose at a 2.0 percent annual rate in the first quarter of 2026.

That is better than the weak 0.5 percent pace in the fourth quarter of 2025, but let’s not confuse a bounce with a boom. A cleaner measure of underlying demand, real final sales to private domestic purchasers, rose 2.5 percent. That is decent, not dynamic. The bigger problem is prices. The PCE price index jumped 4.5 percent in the quarter, while core PCE rose 4.3 percent, both more than double the Fed’s 2 percent target. That is not healthy growth. It is a policy trap.

The Jobs Headline Hides a Softer Labor Market
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The labor market is stable on the surface, but the internals are weak. Nonfarm payrolls rose by 115,000 in April and the unemployment rate held at 4.3 percent. That is the number politicians will repeat.

But the labor force participation rate fell to 61.8 percent from 62.6 percent a year ago, and the employment-population ratio slipped to 59.1 percent from 60.0 percent. The number working part time for economic reasons jumped to 4.9 million, and the broader U-6 underemployment rate was 8.2 percent. That is not labor-market strength. It is softness hiding under an okay-looking headline.
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Prime-Age Work Is Flat, Not Flourishing

One of the best ways to judge labor-market health is to look at prime-age workers, ages 25 to 54. The most recent confirmed prime-age employment-population ratio was about 80.5 percent in March, and it had been basically flat for months. A strong economy pulls prime-age workers into jobs. This one is not doing that nearly enough. Too many working-age Americans are still on the sidelines, and that should worry anyone serious about opportunity and growth.

The Composition of Jobs Tells the Real Story

The composition of job growth is not what a strong, productive expansion should look like. Health care, social assistance, transportation and warehousing, and retail trade led the gains in April, while federal government employment continued to decline.

Cutting the bloated federal workforce is one of the few genuine bright spots. But outside that, the economy is not delivering the broad-based, productivity-enhancing growth people were promised.
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Manufacturing was essentially flat in April and remains well below where protectionists claimed it would be. Information employment is down sharply from its 2022 peak. Transportation and warehousing is still down substantially from its February 2025 peak. That is not an industrial revival. It is stagnation.

Paychecks Are Rising, But Hours and Inflation Matter

Average hourly earnings rose 3.6 percent over the year to $37.41 in April, and the average workweek edged up to 34.3 hours. That puts average weekly pay at roughly $1,283 before taxes.

But families do not live on nominal wage growth alone. They live on purchasing power. When quarterly PCE inflation is running at 4.5 percent, wage gains do not go nearly as far as they should. Workers may see higher paychecks, but too many are still losing ground after inflation, especially with goods and energy pressures still hanging around.

Protectionism and Uncertainty Are Hitting the Real Economy

This weakness is not happening in a vacuum. Tariffs and broader policy uncertainty are part of the drag. Manufacturing, information, and finance have all shown signs of weakness, while the promised factory comeback has failed to materialize.

Deregulation and some tax reforms could help at the margin, and full expensing is a major positive for investment. But that gets undercut when policymakers raise distortions elsewhere, including a bigger SALT deduction and carveouts that make the tax code less neutral and less pro-growth.

Trump 45 got more right early on with deregulation and tax reform before protectionism took over. Trump 47 has leaned much harder into the damaging part first.

Bad Policy Is the Through Line

Some blame belongs to Biden-era excess spending and to the Fed under Powell for letting inflation do so much damage after Covid. That is real. But Trump’s flawed Covid-era policies helped start the decline, and the current administration’s mix of protectionism, immigration restrictions, policy volatility, antitrust populism, price-control thinking, and geopolitical escalation is making things worse.

War risk pushes up energy costs. Trade fights push up goods prices. Policy uncertainty freezes hiring and investment. This is not classical liberalism. It is economic self-sabotage dressed up as strength.

Wall Street Is Pricing a Better Economy Than the One We Have

Stocks can keep rising for a while, but valuations eventually have to answer to fundamentals. Right now, the fundamentals are slower real growth, hotter inflation, weaker labor-market internals, and narrow job gains. That is not a foundation for lasting prosperity. It is a warning sign.
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Three Key Takeaways for Policymakers

• A 2.0 percent GDP growth rate with 4.5 percent PCE inflation is not a healthy economy. It is the result of repeated policy failure.
• A 4.3 percent unemployment rate does not tell the full story when participation is falling, underemployment is elevated, and job growth is too concentrated in government-adjacent sectors.
• The answer is a policy reset toward classical liberalism: spend less, stabilize money, expand free trade, keep what works on investment and deregulation, and stop punishing growth with tariffs, carveouts, and political theater.​