Trump Effect Starts to Show Up in Economy

New data reflect that the president’s tariff and immigration policies are boosting inflation and weighing on jobs

A chaotic rollout of tariffs is starting to filter through to price tags on store shelves. An immigration crackdown is beginning to weigh on jobs growth, measured by federal surveys. Taken together, the impact of President Trump’s whirlwind six months back in office is showing up in the economy.

According to UBS, costs for core goods excluding autos increased at their fastest monthly pace in three years.

The effect isn’t yet enough to derail the economy, which by many measures has weathered Trump’s trade wars much better than many on Wall Street and in Washington feared. Economists see less risk of a recession now than three months ago, a Wall Street Journal survey found.

Yet a long stretch when Trump’s policies left little imprint on the hard data appears to be ending.

Investors have grown accustomed to America rolling with the punches, first during the pandemic in 2020-21 and then during the Federal Reserve’s interest-rate increases from 2022-23. This time, pressure is building internally in hard-to-predict ways.

Tuesday’s inflation numbers for June came in close to economists’ expectations at 2.7% annually. But there were price bumps on what Americans pay for key imports such as furniture and clothing, a potential sign of tariff-linked price increases that many economists think will continue in the months ahead.

The costs for core goods excluding autos rose at their fastest monthly pace in three years, according to UBS. Barring a recession or pullback in tariffs, analysts at the bank project that overall inflation won’t slow to April’s 2.3% rate between now and the end of 2027.

Copper prices touched a record after President Trump announced steep tariffs on imported supplies.

“Today’s report showed that tariffs are beginning to bite,” Omair Sharif, founder and president of Inflation Insights, wrote in a note to clients.

Even as the stock market continued trading near records Tuesday, a selloff in government debt pushed Treasury yields higher, leaving the 30-year yield above 5% for the first time since May.

Cracks also have begun to show in the labor market. While data on the unauthorized workforce is unreliable, employment growth appears to have slowed in industries that rely heavily on workers who entered the country illegally. The foreign-born labor force has shrunk significantly since March. And recent immigrants appear more reluctant to take part in the Labor Department’s monthly survey of households.

To be sure, Americans are still spending, and employers continue to add jobs. On Tuesday, some of the biggest U.S. banks reported better-than-expected quarterly earnings.

Still, the question is whether all that will hold—and, if it doesn’t, how long the world’s largest economy can keep powering ahead.

Inflation for June was close to economists’ expectations at 2.7%.

Americans as of Sunday faced a 20.6% average effective tariff rate, according to the Yale Budget Lab, the highest since 1910.

The full effect of the tariffs might not be felt for months because of importers’ prior stockpiling, long shipping times and Trump’s mercurial dealmaking. But the Yale Budget Lab projects resulting price increases could amount to the equivalent of a $2,800 hit in yearly household income.

Already, the cost of important economic inputs such as steel and aluminum have vaulted higher. Copper prices hit a record after Trump announced 50% tariffs on imported supplies starting Aug. 1, promising to make construction of data centers, homes and semiconductors more expensive.

Isabella Weber, an economics professor at the University of Massachusetts, Amherst, said certainty around tariff levels eventually could give more companies cover to raise prices without losing market share. “Once this dynamic actually kicks in, it could become self-reinforcing,” she added.

Even if tariffs start to show through more clearly in prices, that doesn’t mean overall inflation will follow suit. Tuesday’s report found that services inflation has softened, in particular for shelter. Air fares and hotel rates were also weak. That might be a sign of some households pulling back on discretionary travel. Such data could lead the Fed to conclude that subdued demand will prevent tariffs from fueling knock-on inflation, and it can thus resume cutting interest rates.

White House officials have pushed against the consensus that importers will ultimately pass tariffs along to consumers. In a social-media post after Tuesday’s inflation report, Trump described inflation as “very low” and once again called on the Fed to slash interest rates.

Republicans’ recently-passed megabill of tax and spending cuts also could support growth in some respects, including by allowing businesses to expense new investments, said Alan Cole, a senior economist at the Tax Foundation, a Washington think tank.

“There’s a lot of ability for the economy to preserve its [overall performance], even when there’s inefficient policy somewhere,” he said.

Major banks and credit-card companies recently have reported signs of spending weakness among lower-income Americans, extending a trend from recent years. But that alone might not be enough to slow down an economy in which the wealthy are riding out a record-breaking stock market and propping up overall spending.

“We continue to struggle to see signs of weakness” in our customers, JPMorgan Chief Financial Officer Jeremy Barnum said in an earnings call Tuesday. “The consumer basically seems to be fine.”

Write to David Uberti at david.uberti@wsj.com

Trump Effect Starts to Show Up in Economy

Trump Effect Starts to Show Up in Economy