Andrew Zatlin: Trump’s Battle with the Phantom Economy

“Trump wants an easy money policy that will eventually produce higher inflation.”

– Andy Laperriere, Piper Sandler analyst

August 27, 2025 — President Trump’s second term in office is already shaping up to be one of the most transformative, most impactful terms in modern American history — and we’re just over six months into it…

Sure, you may not be seeing the changes on the surface in your day-to-day life. At least, not yet.

But more than just reshaping the Federal government and redirecting the flow of tax dollars, President Trump is transforming the very incentives that drive our economy in the minds of Americans, foreigners, and especially immigrants.

The proof is right there in the data that’s coming out of the economy.

And that same data is starting to make the government’s job even harder.

And now we know the September rate cut, very likely.

And so the question is, what comes afterwards? When is the next rate cut going to happen? And by how much?

The Fed says they’re going to be data-driven, and that means they’ve got their dual mandate tracking inflation and tracking the labor market. I believe that going forward, the labor market’s going to look more and more positive as the year progresses.

That’s a problem for me because, in fact, I believe that the labor market data is unreliable at this time.

Specifically, I believe that jobless claims are being under-reported, and I believe that payrolls are going to be over-reported. And to understand why I say that, pull up a chair. Buckle up. Let’s dive into the details … starting with jobless claims.

So right now, jobless claims are in a sweet spot that coincides with a pretty decent economy, 225,000 plus or minus.

Why are they hovering so low? And the reason I believe has to do with fear of deportation.

I believe that the Hispanic community is not applying for the jobless benefits that they’re entitled to because they are afraid of being deported. There are lots and lots of anecdotes out there of workers showing up at a government agency and being nabbed by ICE and being deported.

So rather than run the risk of deportation, these folks would rather run the risk of just not having as much money in their pocket from being eligible for jobs claims and not filing. Lemme explain by talking about California. In general, nationally right now, jobless claims are up about 10% year over year, except when we talk California, and that’s where everything signals under reporting.

California is not suffering from the same level of unemployment.

In fact, if you look at jobless claims year over year, California’s flat.

That’s very peculiar. It indicates, first of all, that that 10% national rate, if you exclude California, it’s closer to 15%. That’s a bad number. That’s a bad jump in jobless claims. That signals economic fragility. But why is California so flat? Well, to understand that we have to dive into the details.

It turns out that there are a few sectors where not only jobless claims aren’t flat, they’re actually down year over year. Those sectors would be, for example, agriculture farm workers.

They would be construction and they would be leisure, hospitality, agriculture, jobless claims are down 8% year over year, construction down 10% year over year. Leisure and hospitality down 25%. Business is booming in California.

Or is it? See, the problem is it doesn’t hold up to reality.

But here’s where things get more interesting. See, when someone files for jobless claim, there’s a lot of data that’s picked up. Gender, age, ethnicity, and industry. Where were you working?

Remember I just said construction, agriculture, leisure, hospitality. We’re seeing fewer jobless claims, but you know where we’re seeing a lot more claims. It’s in this category called no information. That’s right. Not everybody calls out where they were working.

So last year, about 13% of California’s jobless claims came back with no industry indicated, no information. 13%. This year it’s at 30%. One out of every three jobless claims being submitted is blank in terms of where the workers are.

Now, why would somebody not want to call out where they were working?

I’ll tell you, because those three sectors that I called out are dominated not just by Hispanic workers but by undocumented workers.

For example, farm workers, 70% of them are undocumented workers. Similarly, construction, around 40% are undocumented Hispanic workers and so on and so on.

In other words, what we have are people who are filing for claims, but they’re hiding because they know that farms are great targets for ICE. Construction sites, great targets for ICE. And so they don’t want to call that out. What they want to do is just get their jobless claims. So they’re filing, but they’re hiding where they were.

That doesn’t explain all of why California claims are flat year over year because there’s the second part, which is a lot of them just aren’t filing at all.

See, you run the risk of presenting yourself to a government agency when you file for jobless claims. And there are plenty of stories out there of Mexican undocumented workers being picked up at a government agency and deported.

So rather than run the risk of being deported, a lot of these workers who are entitled to jobless claims and normally would be filing for those jobless claims, they’re just belt tightening. They’re going to withstand not having an income for a while.

That level of economic contraction is not just at the local level. It’s bleeding out into the broader economy.

Because remember, the Hispanic community is a solid 10% or more of the US population. So if they’re belt tightening, that adds up fast.

And that’s going to be really interesting as we get into the Fall.

Why?

Because that’s when you’ve got farm workers being laid off. That’s when you’ve got seasonal construction workers, seasonal leisure and hospitality workers all being laid off. And a huge chunk of them are Hispanic workers. And as we’ve noted, a lot of them are not going to be filing for claims.

And so jobless claims when they get seasonally adjusted are expecting about 30,000 more claims per week to come up from those sectors I just identified. And they’re not going to see it.

So we could see claims coming down, kissing 210,000 … 200,000, whatever it is, sending out a positive signal that everything’s great, nobody’s laying off, when in fact the exact opposite is going on.

How is this entering now the world of payrolls?

Alright, so payrolls, that’s two sets of data. One is unemployment rates, the other is how many people are or are not employed.

When we calculate unemployment rates, well, that’s again, just like jobless claims. Someone raising their hand and saying, I have a job. I don’t have a job, and here’s some associated demographic information about me.

Well, again, if you’re afraid of being deported, are you likely to respond to someone calling you up from the government and asking you, “Hey, what’s going on?” No.

So what you’re going to have is a huge chunk of the Hispanic community either responding but hiding their ethnicity, which is what we saw last month, and I’ll get to in a minute. Or a lot of them just not participating.

The Hispanic community has a higher rate of unemployment. And so if they’re no longer going to participate, then you’re taking out a portion of the population that has a higher level of unemployment. And that means we’re accenting the portion of the population which has a lower level of unemployment.

As a result, net net, you’re going to see unemployment ease down a little bit. I mentioned, for example, that this is already happening. Well, did you know that in last month’s July information for payrolls, we found that suddenly there were 2 million more native teenage workers out there, 2 million overnight.

And at the same time, we saw non-native workers drop.

Hey, this has nothing to do with actual people physically moving. It has everything to do with, again, that hiding while filing.

Now let’s talk about people employed. This is the data that made Trump go ballistic. Well, this is a different source. This is no longer talking to the individual. Unlike jobless claims, unlike unemployment, this is now talking to companies and saying, how many people do you have working here?

And guess what?

That is also going to turn positive because I believe a lot of these businesses out there, construction and leisure and hospitality business, they’re going to retain workers a little bit more because there’s a fear that some of the workers might not show up at all. And so they’ve got to retain some kind of buffer. And so that’s going to make payrolls go up just a little bit, but enough to signal more positivity than not.

So net-net, I believe throughout the rest of this year, we’re going to see incrementally better payroll data, continued strong and possibly even stronger jobless data reflecting an economy that doesn’t really exist, an economy that really needs more interest rate cuts.

And the Fed’s going to be stingy with them because, hey, labor data’s going to look pretty decent. Let’s see how this develops. What it could lead to is amazing volatility first because the market’s going to get upset that they’re not getting more interest rate cuts.

And then it could lead to another round of volatility because you’re going to come up with this Wyle E. Coyote moment where the economy presents the weakness in other places, and the Fed is forced to basically throw in the towel again.

Zatlin out.

Andrew Zatlin
Moneyball Economics & Grey Swan Investment Fraternity

P.S from Addison: Andrew Zatlin joins us tomorrow on Grey Swan Live!, where we’ll explore to what extent the jobs numbers Powell cited in his Jackson Hole speech warrant a rate cut – and how it could kick off a “terrifying bull market” in stocks.

Andrew has been rated #1 by Bloomberg for his views on the labor market. “You know the old saying, garbage in – garbage out,” quips Andrew. And he’s got a prediction for how much higher the stock market will rally this year.

Join our fully-paid Fraternity members so you can get our top-level contacts and their insights.

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