Trump’s tariffs and government layoffs are clouding economic data and putting the future in question, economist says

Stock market chaos, fears of inflation and recession, Fed concerns about the future of the economy, global anger about tariffs — and that was only the first few days of April.

Does any of that make a difference? You bet it does.

As that great philosopher Yogi Berra has commented, “The future ain’t what it used to be.” And that really matters.

Until April 3, markets believed President Donald Trump was just talking loudly and carrying a toothpick. The business and financial community expected tariffs to be reasonable and temporary. Big mistake.

The tariffs announced were way beyond anything anticipated and are in many cases unreasonable. The equation employed to determine the tariff rate considered only the goods deficits without factoring in the nature of the trade relationships, the types of goods, or the economies of the trading partners.

Not even the use of Greek letters in the tariff rate equation could save it from being panned as absurd.

But that simple equation may change the future.

Much to the chagrin of economists, the upcoming economic data may tell us little about where the economy is or where it is going.

I am not saying the data are wrong. They will be precisely correct. Unfortunately, they could be utterly irrelevant.

Consider first-quarter GDP growth, which will be released April 30. It is used as the baseline for forecasts of future growth.

Will the GDP number be relevant? Maybe not.

There are a number of reasons to discount the upcoming data.

The first factor is President Trump’s on-again, off-again tariff announcements.

When Trump waffled on some of his tariff announcements last month, it benefited both businesses and households, even as it was detrimental to the value of the economic data.

In the period of time between the first announcements of tariffs and when they took effect, some consumers took defensive actions. They stocked up on nonperishable products they feared would suffer significant tariff-induced price increases.

Similarly businesses warehoused supplies of imported inputs, if they could afford to do so. Inventories likely built at a much higher pace, adding to growth.

Both consumer and business spending patterns were altered, making the numbers misleading because, as economists say, growth was “pulled forward.” That is, spending that would normally have happened in the future occurred sooner.

And if demand is pulled forward, production must rise to meet the surge in demand.

The so-called Department of Government Efficiency’s cuts to government employment have caused massive chaos and raised questions about upcoming labor market data.

The unemployment rate rose minimally in March. That should indicate DOGE layoffs are not affecting the economy. Maybe not.

Some of the DOGE “layoffs” are really paid leave until the self-quit workers actually exit the government payrolls. They are not unemployed even if they are not actually working.

When the DOGE unemployed finally hit the streets, we will start to see unemployment claims increase, and the unemployment rate rise. This may occur randomly over the next six months as courts determine the legality of the cuts.

In the interim, unemployment rates will not account for the people who know they no longer have a future in their job.

That also means measures such as income and spending will be distorted.

It’s too early to know how DOGE cuts and tariffs have affected private-sector employment.

Since the government builds almost nothing, it’s the private sector that will feel the full brunt of the government contract cutbacks.

From health-care research firms to makers of national park employee uniforms, firms whose contracts are reduced or terminated will be forced to shrink their workforces and spending.

As government spending reductions spread through the economy, the impacts are multiplied.

The DOGE cuts will eventually hit unemployment, payroll, and income data, consumer and investment spending, and services and goods production, just not right away.

The tariff taxes will be passed to consumers and businesses, some right away and others over time.

Because the tariffs are so large, it is likely that higher input costs will increase prices for consumer goods and services. That will slow growth further, raise inflation, and keep interest rates higher than they would be without the tariffs.

And since we don’t know how tariff rates will shake out long-term, we cannot know what the full impacts will be.

Does the uncertainty over the meaning of the data matter? It does to anyone who runs a business or who invests in the equity markets.

Economic data should tell us what’s happening currently, and that has become questionable.

The data should provide a picture of potential future activity, but that is now more difficult to discern.

And data should help provide forecasts, but those are now cloudier than usual, hampering the ability to plan for the future, especially when it comes to hiring and investing.

As uncertainty about employment and income creeps into household confidence, consumer spending becomes more volatile.

To the extent that corporate earnings are affected by temporary changes in economic behavior, future earnings and stock prices could become more questionable and volatile.

This year’s economic numbers might be technically correct, but federal government policy has changed the rules and the playing field.

The impacts of those changes could take years to fully play out, and that means we have entered a period of greater uncertainty and, as a consequence, greater risk.