The July Jobs Report Signals Stagflation—And Failed Policy Is to Blame

Originally published on Substack. 

Despite what the headlines say, the labor market has been weakening. And the private economy is taking the hit—just as I warned last month and the weak Q2 GDP report.

📉 The Jobs Report, Unpacked

The economy added just +73,000 net jobs in July, far below some expectations. But even that weak number is inflated.

• May and June were revised down by -258,000, wiping out nearly everything that was previously reported because of downward revisions (Reuters).
• Private-sector job growth was +83,000, while government jobs fell by 10,000, including –12,000 federal jobs last month.
• Manufacturing lost 11,000 jobs, a major red flag for those who claim tariffs will bring back jobs.
• Job gains came mostly from taxpayer-funded, government-directed healthcare (+55,000) and social assistance (+18,000)—hardly signs of broad, market-driven improvement.

​Meanwhile, the unemployment rate ticked up to 4.2%, which it has been at or above 4% since May 2024. The labor force participation rate stayed flat at 62.2%, but down 0.5 percentage points from a year ago. The employment-population ratio is down to 59.6%. And the number of long-term unemployed surged by 179,000 to 1.8 million.

This is not a strong labor market. It’s a sluggish one propped up by government-adjacent employment and frozen employment elsewhere.

💵 Wages Are Up—But That Won’t Last

Average weekly earnings rose 4.1% year-over-year, outpacing inflation. But it’s not because productivity is booming. It’s driven by labor shortages and cost pressures. And the margin is shrinking.

• Core CPI is running around 2.9%, and headline CPI is 2.7%.
• Energy and food prices are creeping back up.
• The Fed’s inflation-fighting credibility is slipping again.

Stagflation is stagnant growth and rising inflation, much like we saw during the Biden years and especially during the 1970s. The labor market is a lagging indicator in the economy so if we are already seeing a substantial slowdown in jobs then the worst is yet to come. And inflation appears to be rearing its ugly head again. Could this be another decade of Great Inflation like 50 years ago when Washington was lost with bad policy? Let’s hope not!

🏦 The Fed Is Feeding the Problem

The Federal Reserve’s $6.7 trillion balance sheet is still distorting interest rates across the economy. It’s keeping long-term rates artificially low while manipulating risk pricing and shielding Congress from the fiscal consequences of overspending.

This is not neutral monetary policy. It’s market manipulation.

And it’s creating perverse incentives: too much debt, not enough investment. The Fed hasn’t committed to a rules-based policy framework, and until it does, we’ll keep facing boom-bust cycles enabled by political pressure and economic mismanagement. This doesn’t mean Chair Powell should go. But it does mean that his leadership at the Fed is highly questionable given the terrible monetary policy of expansionary base money to distort and inflate the economy resulting in much of the stagflation we’re in today and was exacerbated by Trump’s trade protectionism along with overspending on the Eccles Building renovations and hundreds of billions of dollars in operating losses.

📦 The Trade War Is Back—And Still Failing

Let’s be clear: Trump’s tariff-first approach is creating more harm than good.

As I outlined in my recent post on GDP distortion, Q1 saw a surge in imports as firms rushed to beat tariff hikes. Q2 saw those inventories collapse. Now? Hiring has stalled. Investment is slowing. The only thing rising is economic uncertainty.

• Manufacturing lost 11,000 jobs in July
• The trade deficit remains historically high
• Consumer prices are still elevated, even with falling imports

Tariffs are a hidden tax on Americans. They raise costs. They shrink opportunity. They don’t fix trade imbalances. And those who pushed them have been wrong—consistently.

✅ What Should Be Done

I’ve been calling for a better way since long before these numbers hit:

1. End the trade war. Tariffs are not a growth strategy—they’re a tax.
2. Reclaim trade authority in Congress. We need predictability, not executive volatility.
3. Cut government spending. Overspending is lighter fluid to inflation
4. Simplify, flatten, and cut taxes.
5. Deregulate labor, energy, and capital markets. Let markets allocate.
6. Anchor the Fed to rules-based policy until ending it. No more balance sheet games.

The One Big Beautiful Bill (OBBB) was importance to make much of the 2017 TCJA permanent and had some pro-growth elements—like full expensing, but was largely diluted by crony carveouts and delayed spending restraint. If President Trump is serious about restoring prosperity, now’s the time to change course and adopt real free-market reforms.

Conclusion

The July jobs report confirms what I’ve warned for months: this isn’t a “Golden Age” recovery. It’s policy-driven stagnation. The private sector is flat. Inflation is creeping back. And government is doing what it always does—getting in the way.

If we want prosperity, we need to get Washington out of the way and let people create, build, trade, and flourish. That means rejecting tariffs, restoring fiscal sanity, ending monetary manipulation, and trusting people in markets.

Let people prosper!