Cynics scoff at such ideals. Skeptics question the integrity of the men who acted on that principle in 1776.

Progressives deride both the principle and the men who acted upon it as venal and vicious, and seek to replace both at the core of our government and the core of our society.

In an April 15 lecture delivered at the University of Texas, Justice Clarence Thomas eloquently reminds us that our nation’s founding principle is still relevant, still foundational, and still worth defending.

He reminds us that the progressive “elites” in this country, expropriating a rubric of virtue, oppose this principle and want to dismantle the government founded upon it.

I could not hope to add to what Justice Thomas said. Instead, I share his thoughts in their entirety.

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Justice Thomas’ UT Address

SUPREME COURT ASSOCIATE JUSTICE CLARENCE THOMAS: President Davis, Provost William Inboden, Dean Dyer, faculty, students, and honored guests, I thank each of you for being here. And I thank the school and the officials here for the invitation to visit the University of Texas at Austin.

My wife, Virginia, and I are pleased to be here. To celebrate the 250th anniversary of the Declaration of Independence. If my memory serves me, this is only my second visit to the University of Texas.

And this is the first visit at the invitation of the university. But I have hired and worked with a number of outstanding young people associated with this university. My first was now Chief Judge Greg Maggs of the U.S. Court of Appeals for the Armed Services, who was a fairly new faculty member at the law school when I became a member of the court. He took a leave of absence to help me as a law clerk during the second half of my first term. My first UT graduate to serve as a law clerk was Greg Coleman three decades ago. Greg went on to become the first solicitor of the state of Texas.

He was simply outstanding, as was his son, Reed, who also was a graduate of the law school here, and who was equally outstanding. Greg’s widow and our very dear friend, Stephanie, is with us today. Stephanie, thank you, and thanks for being such a good friend.

And both Greg and his son, Reed, clerked for my dear friend, Judge Edith Jones, also a graduate of UT Law School. I greatly admire Judge Jones. She is one of my heroes, and I admire her as a person and as a jurist.

And I’m grateful that she can be here today. A number of my former clerks are also here. I can’t tell you which ones, so let me ask them to stand to be recognized.

So in my chambers, UT and UT Law School are very well represented. I hope—I’m having a little trouble with this, getting used to the podium, sorry about that— I hope that my talk today will help in some small way to inaugurate another great initiative, the State of Texas’ plan to restore the teaching of civics and Western civilization to a central place in its flagship university. And I am grateful and honored to have been invited by Justin Dyer, the dean of the new School of Civic Leadership.

I’m also grateful for the assistance of my former law clerk, Professor John Yu, who has spent the last three decades at Berkeley Law School, but is now joining Justin and his team here at the University of Texas. The school’s stated mission is to help students encounter the distinct inheritance of Western civilization and the American constitutional tradition as part of a larger quest for wisdom about how to live and how to lead. Your plans could not come at a more important moment for our nation, when as we celebrate the 250th anniversary of the Declaration of Independence, the very values announced in it have fallen out of favor.

It is my sincere hope that your work to revitalize the teaching and research of Western civilization and the American constitutional tradition will lead the way in the reform of our nation’s colleges and universities. And I hope that your example will help to rejuvenate our fellow citizens’ commitment to the principles of the Declaration of Independence. I seem to always enjoy my travels to this amazing state.

My wife, Virginia, and I have many wonderful friends and acquaintances here. And it is so special to have our dear friends Harlan and Kathy Crow join us today. One of the features of this state that stands out in a way that Texans talk about it, what comes through is the sustained and sustaining affection that they have for their home state.

That reverential feeling for and attachment to Texas is to be respected and admired, and if possible, emulated. This affection is similar to the attachment that I grew to have for my home state of Georgia, and certainly for our country, despite the indelible mark of segregation and its companion evils. I was proud to say that I was American by birth and Georgian by the grace of God.

It was not uncommon to hear others openly proclaim their allegiance to God and country. At our grammar school, St. Benedict’s, we started each school day by lining up two by two and class by class in the schoolyard to watch the raising of our flag and to say the Pledge of Allegiance before silently marching to our respective classrooms. Even as so much of our God-given and constitutional rights were denied us, we still faithfully said the Pledge of Allegiance, memorized the preamble to the Constitution, and yearned for the fulfillment of its promised ideals.

Sadly, these sentiments are not as widely shared among our fellow citizens today, and they certainly do not seem to have that sustaining strength that they had back then. In fact, all too often the sentiments tend toward cynicism, rejection, hostility, and animus toward our country and its ideals. With the foregoing in mind, I would like to begin by addressing my first encounter with the principles of the Declaration of Independence.

It is perhaps not what you would immediately think. The second paragraph of the Declaration proclaims, We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights. Throughout my youth, these truths were articles of faith that were impervious to bigotry and discrimination.

The American Heritage Dictionary of English Language defines self-evident as obviously true and requiring no proof, argument, or explanation. Whether they had a divine source or a worldly one, they were never questioned. They were the Holy Grail, the North Star, the Rock, immovable and unquestioned.

Despite the multiplicity of laws and customs that wreaked a bigotry, it was universally believed among those blacks with whom I lived and who had very little or no formal education that in God’s eyes and under our Constitution, we were equal. This was also the case with my nuns, most of whom were Irish immigrants. At home, at school, and at church, we were taught that we are inherently equal, that equality came from God, and that it could not be diminished by man.

We were made in the image and likeness of God. That proposition was not debatable and was beyond the power of man to alter. Others with power and animus could treat us as unequal, but they lacked the divine power to make us so.

Somehow, without formal education, the older people knew that these God-given or natural rights preceded and transcended governmental power or authority. When you lived in a segregated world with palpable discrimination and the governments nearest to you enforced laws and customs that promoted unequal treatment, it was obvious that your rights or your dignity did not come from those governments, but rather from God. Though not a literate man, my grandfather often spoke of our rights and obligations coming from God, not from architects of segregation and discrimination.

Men were not angels. They were subject to the constraints of antecedent rights, and we were not subject to those men, even as we were subjected to their whims. We knew that life, liberty, and property were sacrosanct.

Those truths were self-evident to the adults in our lives and were taught to us as indelible, undeniable truths. Those around us would endure or could endure the insults of segregation with dignity because they knew that in God’s eyes, they were equal. All too often, there is an unfortunate tendency when discussing the Declaration to make these self-evident truths and first principles of government obscure.

Intellectuals want you to believe that our founding principles are matters of esoteric philosophy or sophisticated debate. Even those who support them too often talk about them as if they were academic playthings. They overcomplicate them, take the spirit out of them, and discuss them in a way that puts us to sleep.

But the principles of the Declaration of Independence, as I encountered them, are a way of life. They are not an abstract theory that you only learn in college or law school, but the basic premises of our Constitution and government that you can learn from the people all around you. When Alexis de Tocqueville visited early America from France, he was struck that there was no country in the civilized world where they were less occupied with philosophy than the United States.

But there was likewise no country where the principles of the Declaration were more deeply ingrained or more fiercely defended than those same United States. That is the sense in which I knew the principles of the Declaration in my childhood. That is the only sense in which those principles can sustain our country.

And that is the sense in which I will speak to you about those principles today. I believe now, as I did then, that the Declaration of 1776 provides us with the principles to guide us as citizens of our republic. Even in this time of questioning and criticism of our founding, we should not forget that the Declaration established the principles that produced, despite all of our imperfections, our miscues, and our tragic mistakes, it gave us the freest, wealthiest, and most powerful nation in the history of the world.

It provided the moral principles by which Frederick Douglass, Abraham Lincoln, and Martin Luther King would criticize the institutions of slavery and segregation. The Declaration is, in fact, along with the Gospels, one of the greatest anti-slavery documents in the history of Western civilization. It did not establish a form of government.

That was the work of the Constitution that followed. But it stated the purpose of government. The Declaration made it clear, in clear prose, that the purpose of government is to protect our God-given, unalienable rights, rights that all individuals equally possess.

As Abraham Lincoln declared in 1858, in the midst of his great debates with Stephen Douglass, quote, drop every paltry, insignificant thought for any man’s success. It is nothing. I am nothing.

Judge Douglass is nothing. But do not destroy that immortal emblem of humanity, the Declaration of American Independence. The ideas of the Declaration are so powerful that our nation could not coexist with the contradiction created by the great evil of slavery.

Those principles were so powerful that hundreds of thousands of Americans fought and died in the Civil War to make men free. Those ideas have been so powerful that they convinced our nation to finally end segregation. They continue to be so powerful today that they have inspired people throughout the world to throw off the shackles of their own oppressors.

And it all began with our founders declaring in 1776, in the Declaration of Independence, that we hold these truths to be self-evident, that all men are created equal, and that they are endowed by their creator with certain unalienable rights, that among these are life, liberty, and the pursuit of happiness. We should also not forget the important sentence that follows, that to secure these rights, governments are instituted among men, deriving their just powers from the consent of the governed, that to secure these rights, governments are instituted. The principle of consent follows from the principle of equality.

We the people can never legitimately consent to the violation of our God-given equality. However, when I encounter the Declaration of Independence anew today, I am most struck by the final sentence. It can be easy to forget, 250 years later, the courage it took for those 56 men to sign the Declaration.

Arguably, those men committed treason against the king, risking death at the hands of an empire far mightier than the newborn United States. They thus concluded with the memorable final sentence, and I quote, and for the support of this declaration, with a firm reliance on the protection of divine providence, we mutually pledge to each other our lives, our fortunes, and our sacred honor. I will say it again.

We mutually pledge to each other our lives, our fortunes, and our sacred honor. Recently, I came across a definition of courage that is attributed to President Franklin Delano Roosevelt. And courage is not the absence of fear, but rather the assessment that something else is more important than fear.

In essence, the signers of the Declaration were saying that they were willing to die for the principles they were asserting, the supreme act of courage. Those principles were more important than their fear. Nothing in the Declaration of Independence, I now realize, matters without that final sentence.

Without that sentence, the rest of the Declaration is but mere words on parchment paper. Nice words, but nonetheless, just words. What changed the world was not the words, but the commitment and spirit of the people who were willing to labor, sacrifice, and even give their lives what Lincoln and Gettysburg call the last full measure of devotion for the Declaration’s principles.

It is that devotion to which we owe our rich inheritance. It was that devotion that sustained the Founding Fathers and the Continental Army as they fought and won the Revolutionary War, braved the winter at Valley Forge, crossed the Delaware, and defeated an army, many times their number and firepower, to win their freedom. It was that devotion that Nathan Hale expressed when, before being executed by the British, he reportedly said, I only regret that I have but one life to give for this country.

It was that devotion that Patrick Henry invoked when he stood before the Virginia Convention and asked, Is life so dear or peace so sweet as to be purchased at the price of chains and slavery? Forbid it, Almighty God. I know not what course others may take, but for me, give me liberty or give me death.

That devotion has driven the great achievements and heroism of Americans in the 250 years since. Think of the frontiersmen who settled the West. Think of the families who built their little towns on the prairies.

Think of the women who raised their children to love God and country and sent them off to fight wars. Think of the soldiers on the battlefields of the Civil War who sang, As he died to make men holy, let us die to make men free. Think of the innovators and laborers and engineers who Tocqueville observed were so infused with the patriotism that they felt every triumph for their country as a triumph in their personal lives.

Think of how the devotion carried us from Independence Hall to Flanders Field and to the beaches of Normandy. Think of the memorable scene in the Band of Brothers when the American soldiers arrived at a concentration camp, saw the suffering, emaciated, desperate prisoners, unlocked the gates and gave them food and blankets and warm embraces. The soldiers looked around and knew in their hearts that this is why we fight.

Think of the passengers of Flight 93 that crashed in Skanksville, Pennsylvania on 9-11 or the young men and women whom we send in harm’s way even as we sit here today. Think of my grandparents who heroically, quietly, without fanfare sat my brother and me down at the kitchen table in August of 1955 and committed the rest of their lives to us so that we could have a chance. They told us, we don’t have no education.

We don’t have no education and no chance, but you boys are going to have a chance. But we’re going to devote the rest of our lives to you boys. It was their devotion, their love, their dedication to raising us right that has made the difference, not the words, though the words expressed as best they could what they intended to do.

Their devotion is what mattered. Similarly, it is the devotion expressed in the final sentence of the Declaration, the willingness to do anything for our principles that has throughout American history been most indispensable. It is that devotion that we are missing today and that we must find in our hearts if this nation is to endure.

I arrived in Washington, D.C. 47 years ago. It’s hard to believe. I arrived as a staffer for Senator Jack Danforth of Missouri in 1979, telling myself that the job on Capitol Hill would be a short stop on my way home to Savannah, Georgia.

I then joined the executive branch during the Reagan administration, served in two federal agencies for nearly a decade, served as a judge on the Federal Court of Appeals, and have for the past 34 years served on the Supreme Court. Since the day I arrived in Washington, there was never a shortage of people espousing noble purposes, saying all the right things. All around me there have been people full of promises, claiming a commitment to some righteous cause, to traditional morality, to national defense, to free enterprise, to religious piety, or to the original meaning of the Constitution.

These people can be just as high-minded as the men who signed the Declaration. They can mouth the words of the Declaration and parrot its principles. They can write essays and talk at conferences about the Declaration with the best of them.

All too often, however, this was but lip service, camouflaged by grand theories in the tall grass of big words and eloquent phrases. What seemed to be lacking, however, was that devotion. People gain positions of authority, and you learn who they really are.

To paraphrase something I recently read, combat strips us down to our essentials. Once in the spotlight, in that combat, many people fall prey to the lures that are set up to turn them away from their previously untested principles. They become petrified by criticism, so fearful of negative attention that they find ways to avoid doing the right thing.

Or they fall prey to the enchanting siren songs of flattery and become so bewitched by praise that they will desperately seek to conform accordingly. They are enticed by access to things that were previously unavailable to them. They get so swept up in the euphoria of acclamation and acceptance that they put aside their convictions.

They water down their message, negotiate against themselves, vote against their principles, and hide in the tall grass. They recast themselves as institutionalists, pragmatists, or thoughtful moderates, all as a way of justifying their failures to themselves, their consciences, and their country. It did not take me long in Washington to stop wondering why the Supreme Court took 60 years to overrule Plessy v.

Ferguson, the 1896 decision that endorsed government-enforced racial segregation and validated the Jim Crow South that I grew up in. It could not possibly have taken my court 60 years to know that Plessy was a hideous wrong and that racial discrimination was grossly incompatible with our colorblind Constitution. The justices must have known it all along.

The right thing to do, as Justice Harlan spelled out in his lone dissent, was obvious, as it so often is. Perhaps what stood in the way was cowardice. The justices may have been afraid of the societal consequences.

They may have been afraid of coming under political fire. They may have been afraid of losing their social standing. They may have been afraid of bad press.

They could have been concerned that if they began to enforce a colorblind Constitution, they would have to address interracial marriage next. But in any case, for 60 disgraceful years, they made American children like me grow up in a racial caste system because it was easier to do nothing than to do the right thing. When Americans look to Washington and wonder why it is so often disappointed, it is not because there are too few people who know what is right.

It is not because we lack the intellect or the capacity or the talent. It is instead because there are too few people who are willing to do what it takes to do the right thing, to sacrifice the popularity, flattery, comfort, and security that are the purchase price for principle. It is because too few of us reflect on and reflect the courage and commitment of that final sentence of the Declaration.

And so many seem to have forgotten how much others have sacrificed so that this nation could exist and endure. I will state this more poignantly. Do any of us have what it took for our young soldiers to storm Normandy Beach, to fight at Guadalcanal, to later fight at Chosin Reservoir?

If we can’t say that we have the courage required of these young soldiers in battle to defend our founding principles, then how do we preserve these principles and this republic? Until we have a devotion that matches the courage of those who made this country possible, I doubt, I seriously doubt any amount of study or development of insights about our Constitution will make much difference. There is a world of difference between what it takes to score academic points and what it takes to protect and defend the Constitution as we are sworn to do.

I have faced this struggle myself. About 43 years ago, in the early spring of 1983, I was the lowest point in my life. I had just buried both of my grandparents, the man and woman who raised me, and the two greatest people that I have ever known.

I was broke. I was living in and nearly evicted from a cockroach-infested apartment. I could not pay my credit card bills on time.

I would soon sell my car to pay my son’s tuition. I was being constantly attacked by the media and Congress because as chairman of the Equal Employment Opportunity Commission, I did not bow to the then prevailing orthodoxy on race. At that point, I asked myself a simple question.

What are your principles worth to you? My answer then was the same I would give today. It is worth, they are worth, life itself.

What are those principles? They are the same principles in the Declaration. They were bequeathed to me by my grandparents and reinforced by my nuns and my faith.

In God’s eyes, we are equal. We are all equally created in the image and likeness of God. We are all endowed with the natural rights to life, liberty, and happiness.

Our rights and our dignity are inherent. They do not come from others, and they do not come from the government. And our government derives its legitimacy and its authority from our consent.

We do not derive our rights from our government. The primacy of our rights in relation to our government is crucial in reconciling the immortal words of the Declaration with our Constitution and our history. None of our rights come from the government.

All of the government’s authority comes from our consent. And the structure and limited role of government is to assure that it does not exceed the authority to which we have consented or intrude on our natural rights. The Constitution is the means of government.

It is the Declaration that announces the ends of government. The Constitution achieves this purpose by protecting our natural rights and our liberties from concentrated power and excessive democracy. Our Constitution creates a separation of powers and federalism, truly for the first time in modern history, to prevent the government from becoming so strong that it threatens our natural rights.

Federalist No. 10 proposed the idea that the great threat to our rights comes from the majority faction. Human history teaches us, alas, that numerical majorities frequently seek to control government and use the state to violate rights of the minority.

Because man has fallen, and the desire for power was, as James Madison described it, sown in the nature of man, government had to be limited. For as Madison also said, if men were angels, no government would be necessary. If angels were to govern men, neither external nor internal controls on government would be necessary.

But, alas, men are not angels. The slaveholders used the power of government to deny the fundamental rights, natural rights, of the slaves. The segregationists used the state to oppress the freed men and women, including my ancestors.

As we meet today, it is unclear whether these principles will endure. At the beginning of the 20th century, a new set of first principles of government was introduced into the American mainstream. The proponents of this new set of first principles, most prominent among them, the 28th president of our country, Woodrow Wilson, called it progressivism.

Since Wilson’s presidency, progressivism has made many inroads into our system of government and our way of life. It has coexisted uneasily with the principles of the Declaration. Because it is opposed to those principles, it is not possible for the two to coexist forever.

Progressivism was not native to America. Wilson and the progressives candidly admitted that they took it from Otto von Bismarck’s Germany, whose state-centric society they admired. Progressives like Wilson argued that America needed to leave behind the principles of the founding and catch up with the more advanced and sophisticated system of relatively unimpeded state power, nearly perfected.

He acknowledged that it was a foreign science speaking very little of the language of English or American principle, which offers none but what are, to our minds, alien ideas. He thus described America still stuck with its original system of government as, quote, slow to see the superiority of the European system. Progressivism was the first mainstream American political movement, with the possible exception of the pro-slavery reactionaries on the eve of the Civil War, quote, to openly oppose the principles of the Declaration.

Progressives strove to undo the Declaration’s commitment to equality and natural rights, both of which they denied were self-evident. To Wilson, the unalienable rights of the individual were, quote, a lot of nonsense. Wilson redefined liberty, not as a natural right attendant and assedent to the government, but as, quote, the right of those who are governed to adjust government to their own needs and interests.

In other words, liberty no longer preceded the government as a gift from God, but was to be enjoyed at the grace of the government. The government, as Wilson reconceived it, would be, quote, beneficent and indispensable. Progressives such as John Dewey attacked the Framers for believing that their ideas were immutable truth, good for all times and places, when instead they were, according to him, historically conditioned and relevant only in their own time.

Now Dewey and the progressives argued those ideas are to be displaced. Progressivism seeks to replace the basic premises of the Declaration of Independence and hence our form of government. It holds that our rights and our dignities come not from God but from government.

It requires of the people a subservience and weakness incompatible with a constitution premised on the transcendent origin of our rights. You will not be surprised to learn that the progressives had a great deal of contempt for us, the American people. Before he entered politics, Wilson would describe the American people as, quote, selfish, ignorant, timid, stubborn, and foolish.

He lamented that we do too much by vote and too little by expert rule. He proposed that the people be ruled by administrators who use them as tools. He once again aspired to be like Germany, where the people, he said admiringly, were docile and acquiescent.

The century of progressivism did not go well. The European system that Wilson and the progressives scolded Americans for not adopting, which he called nearly perfect, led to the governments that caused the most awful century that the world has ever seen. Stalin, Hitler, Mussolini, and Mao all were intertwined with the rise of progressivism and all were opposed to the natural rights on which our declaration are based.

Many progressives expressed admiration for each of them shortly before their governments killed tens of millions of people. It was a terrible mistake to adopt progressivism’s rejection of the declaration’s vision of universal, unalienable natural rights. Wilson’s claim that natural rights must give way to historical progress could justify the greatest mistake in our history.

In Plessy v. Ferguson, my court upheld Louisiana’s system of racial segregation because, quote, separate but equal, it observed, was reasonable in light of the established usages, customs, and traditions of the people and with a view to the promotion of their comfort and the preservation of the public peace and good order. It comes as no surprise that the progressives embraced eugenics.

Progressives believed that Darwinian science, the idea of ever-advancing progress written into biology itself, had proven the inherent superiority and inferiority of the races. It was only a small step for Wilson to resegregate the federal workforce. It was only another step for the government to launch sterilization programs on those deemed by the experts of the day to be unfit to reproduce, upheld by my court in Buck v.

Bell in an opinion written by no less a figure than Justice Oliver Wendell Holmes. We can argue over whether you believe in immutable, absolute natural rights or the Wilsonian idea of ever-progressing history. Indeed, your school of civic leadership was created to host just such arguments, but let me ask you to consider the consequences.

European thinkers have long criticized America for remaining trapped in a Lockean world with its weak, decentralized government and strong individual rights. They say our 18th century declaration has prevented us from progressing to higher forms of government, but we were fortunate not to trade our Lockean bonds for the supposedly enlightened world of Hegel, Marx, and their followers. Fascism, which after all was National Socialism, triggered wars in Europe and Asia that killed tens of millions.

The socialism of the Soviet Union and the People’s Republic of China proceeded to kill more tens of millions of their own people. This is what happens when natural rights give way to the higher good of notions of history, progress, or as Thomas Sowell has written, the visions of the anointed. None of this, of course, was an improvement on the principles of the declaration.

Tocqueville’s Democracy in America is largely about how America owed its superiority over Europe to its conscious decision to reject central planning and administrative rule, root and branch. Progressivism, in other words, is retrogressive. As Calvin Coolidge said on the 150th anniversary of the Declaration, and I quote, if all men are created equal, that is final.

If they are endowed with inalienable rights, that is final. If governments derive their just powers from the consent of the government, that is final. No advance, no progress can be made beyond these propositions.

If anyone wishes to deny their truth or their soundness, the only direction in which they can proceed historically is not forward but backward toward the time when there was no equality, no rights of individuals, no rule of the people. When Abraham Lincoln addressed the assembled crowd at Gettysburg, they had gathered to memorialize the past, but Lincoln’s address urged them to not do so with complacency. Instead, Lincoln said, they should look to the past as inspiration to take them to greater heights in the future, and I quote, it is rather for us to be here dedicated to the great task remaining before us, that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion, that we were highly resolved that these dead shall not have died in vain, that this nation shall have a new birth of freedom, and that this government of the people, by the people, and for the people shall not perish from the earth.

As we are gathered to celebrate the 250th anniversary of the Declaration, it may be tempting to do so as if we are passive spectators. It may be tempting to enjoy our tea and crumpets, treat the Declaration like a shiny object or a keepsake, and listen to the sound of our own voices. We could get into debates over whose conception of the founding is better, over how we are so much better than our founders were, over what we would do differently.

We could be careful to not do anything that exposes us to criticism, costs us friends, or hurts our career prospects. But in my view, we must find in ourselves that same level of courage that the signers of the Declaration had, so that we can do for our future what they did for theirs. Each of you will have opportunities to be courageous every day, whether your calling in life is as a day laborer, a stay-at-home mom, a small business owner, an educator, an office worker, a judge, or some other endeavor.

It may mean speaking up in class tomorrow when someone around you expects you to live by lies. It may mean confronting today’s fashionable bigotries, such as anti-Semitism. It may mean standing up for your religion when it is mocked and disparaged by a professor.

It may mean not budging on your principles when it will entail losing friends or being ostracized. It may mean running for your school board when you see that they are teaching your children to hate your values and our country. It may mean turning down a job offer that requires you to make moral or ethical compromises.

One thing I do know to be true. It will mean waking up every day with the resolve to withstand unfair criticism and attacks. These are the choices that we will confront, that will confront you, and you must decide whether to respond with timidity or with courage, as the signers of the Declaration did.

It will, of course, not be easy. It never is. But if, like me, you need a greater source of strength than yourselves, you will need to rely on your faith to guide and to sustain you through it all.

You will disappoint people you thought were friends and endure personal attacks, as well as attacks on those you care about. But if you stand, you will find that courage, like cowardice, can be habit-forming, and it will become a part of your life and a part of who you are. And I may dare say it is liberating.

You will also be a living example for others to emulate. So by all means, celebrate the Declaration of Independence. It is the most important act of American history, the foundation of our Constitution, and, as Lincoln said, the sheet anchor of our republic.

But I implore you to celebrate it by standing up for it, by defending it, and by recommitting yourselves to living up to its ideals. Channel the courage of the men who faced down a king and signed it. Or a president who led the nation in a civil war, rather than permit this house to be divided by the great contradiction of slavery.

Take increased devotion to that cause for which they gave the last full measure. And, with a firm reliance on the protection of divine providence, let us mutually pledge to each other our lives, our fortunes, and our sacred honor. Thank you, and may God continue to bless our country.

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Just about every “expert” analysis has been wrong.

Consequently, when even alternative media outlets such as ZeroHedge puts out yet another “doomsday” headline about the Persian Gulf, we are well advised to regard what follows with more than the usual skepticism.

The chemical in question is sulfuric acid, a major byproduct of oil refining, particularly refining of heavy “sour” crudes with high sulfur content.

Goldman analysts Kyle Shaffer and Amanda Ross provided clients with a broad overview of industrials and natural resources amid energy disruptions in the Gulf area. In the note, they stated that the well-known Gulf energy shock is set to disrupt LNG production in Qatar for years to come. However, they also highlighted another emerging supply crunch that has received far less attention: sulfuric acid.

“Some long-lasting consequences have also started to emerge, including a 3-5 years production loss for LNG facility in Qatar, a 6-12 month re-starting time for some aluminum facilities in the Gulf, and shortage of sulfuric acid which can potentially impact future production for copper and lithium” Shaffer and Ross said.

Even a cursory glance at commodities prices shows that anything coming out of the Persian Gulf has seen major price appreciation since the start of Operation Epic Fury. To the extent that industrial chemicals are shipped from Persian Gulf refineries, it is a given that, at present, those chemicals are not being shipped from Persian Gulf refineries.

How significant is the loss of Persian Gulf sulfuric acid? Depending on the analyst, it is anywhere from very significant to presenting a national security threat.

Any supply dislocation of a key industrial chemical is obviously a costly event…but for whom? When not every cost is shared equally around the world, who pays the most and who pays the least can be more significant than the cost itself.

Update

With Iran just this morning declaring the Strait of Hormuz fully open, an additional question which will have to play out is how quickly will the supply dislocations ease and pre-war normal shipping flows be restored to the Persian Gulf?

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Beware The Narrative

The constant caveat in reading all reporting about the war in Iran, and really any war, is to beware the narrative. Media outlets all veer towards propaganda and deliberate bias—a sad reality of modern journalism that is also why All Facts Matter exists.

As one reader has remarked:

It’s pretty much impossible to follow the various narratives. I read so many Substacks that are referential to some media environment. Most people I know don’t watch MSM (cable news) and some read Liberal elite papers, some read Conservative elite papers. But even within the ideologies there is more divergence. And you can’t even get into it when the Substackers start treating their Substack algorithmic silo as understood by the audience. I read stuff referencing people I’ve never heard of like its assumed that everyone has read that piece.

Getting harder every day to organize around narrative construction like that.

With bias a near constant fixture in what passes today for journalism, we owe it to ourselves to both be aware of any outlet’s narrative lens and to remain focused on the facts without regard to the narrative lens.

For every media outlet, it is imperative to look past the headlines. Even narrowly focused outlets are prone to provocative and even misleading headlines. An article in “Mexico Business” which covers much of the same territory on sulfuric acid as ZeroHedge, appeared the other day under this headline:

Reading into the article itself, we find the lede well and truly buried almost at the end:

While Mexico is not among the most affected countries, tighter global supply and rising prices could increase input costs for domestic industries, particularly mining and fertilizers, reinforcing the country’s sensitivity to external supply shocks in critical industrial chemicals.

China’s sulfur export ban does raise economic risks for Mexico, but only a little.

These sort of media manipulations are why I often advise readers to “trust nothing. Verify everything.”

That being said, what is the story on sulfuric acid? What is the impact of the war with Iran on sulfur and where is it being felt?

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Persian Gulf Blockade Is Hitting China Hard

What tripped media concerns over sulfuric acid was China’s recent announcement, first reported on April 10, that it is suspending exports of sulfuric acid, owing to shortages within its own industries.

Particularly relevant is China’s apparent justification for the export ban: it needs to conserve the chemical for its own supply chains and manufacturing industries.

China’s move to conserve sulfuric acid supplies during the peak crop-planting season will put further pressure on the market. That squeeze will hit the copper-mining industries in key producers such as Chile, the Democratic Republic of Congo and Zambia.

Acuity first reported the Chinese ban on Thursday, saying the restriction could last throughout 2026. China’s Ministry of Commerce didn’t immediately respond to a request for comment.

The need to conserve contradicts other reporting we have seen about China, some of which has assessed China as having the resource depth to fend off oil supply disruptions for months.

Yet, its supply buffer of an estimated 1.2-1.3 billion barrels of crude in strategic and commercial stockpiles could last up to four months, Rush Doshi, director of the China Strategy Initiative at the Council on Foreign Relations, told CNBC on Monday, when oil prices briefly hit $118 per barrel.

“China has taken the last 20 years to reduce some of its dependence on maritime oil flows,” Doshi said.

If China has ample reserves of crude, why is it feeling the need to restrict exports of a byproduct of heavy crude refining?

Corporate media does not say.

Yet the data shows that China is paying dearly for sulfur right now, as the war with Iran has pushed what China pays for sulfur up more than 65% just since the start of the war.

The impact to China of the current surge already exceeds the price spike when Russia invaded Ukraine in 2022.

Why is China suspending sulfur exports? With their cost for sulfur running nearly double from just before the start of the war with Iran, China is hoarding the chemical. China does not want to see the price its manufacturers pay for sulfur going any higher.

China may have four months’ supply of crude in reserve. That does not mean it has four months of sulfur as well. Based on current pricing as well as China’s export ban, we must conclude that China does not have much of a sulfur reserve.

Perversely, the ban may not solve China’s problems, and may even make them worse. While sulfur is particularly useful for smelting industrial metals such as copper, exporting sulfur has been a means for Chinese smelters to defray other costs and keep their operations profitable. The export ban may actually hamper China’s copper production.

For China’s copper smelters, the policy shift could accelerate production cuts. Smelters had relied on strong sulfuric acid prices over the past year to offset a sharp decline in treatment charges caused by a shortage of copper concentrate. However, increased domestic availability of acid following the export halt may cap or reverse price gains, weakening that support.

“Acid prices may slow down their rising pace or even flip into a fall, but neither is good for us,” said an official with a Chinese smelter.

Spot treatment charges for imported copper concentrate in China fell to a historic low of minus US$77/t on April 10, compared with minus US$76.7 a week earlier and minus US$28.6 a year ago, according to Argus data. The negative margins reflect intense competition for limited concentrate supply, leaving smelters increasingly dependent on byproduct revenues

With or without a sulfur export ban, closing the Strait of Hormuz is producing significant and broad price shocks throughout China’s industrial sectors.

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Not Just China

Digging even further into the industrial chemical market, it is readily apparent that several parts of the world rely on Persian Gulf refinery output for large portions of their sulfur supply.

According to BusinessAnalytiq, however, the price impacts of losing Persian Gulf sulfur production vary widely.

China and Asia are feeling the worst price shocks, with India not far behind.

The US, on the other hand, is feeling much less impact, and is unlikely to feel much more of a pinch for the foreseeable future.

Contrast that with Chile, which buys over a million tons of sulfuric acid from China every year, the price has risen 44% in just the past month. The chemical plays a vital role in copper production, and Chile is the world’s number 1 producer of copper.

Disruption of sulfur production in the Persian Gulf or from Persian Gulf oil stocks will likely impact a variety of industries worldwide. Sulfur, and particularly sulfuric acid, has a number of industrial applications.

Primary Industrial Applications:

• Fertiliser Production: 65% of total consumption for phosphate rock dissolution

• Metal Processing: 20% for copper leaching operations and other metallurgical processes

• Chemical Manufacturing: 10% for intermediate compound synthesis

• Specialised Applications: 5% including battery production and petroleum refining

As Africa sources much of its sulfur consumption from the Middle East, the surge in sulfur prices is hitting countries with large resource extraction economies—Zambia and the Democratic Republic Of Congo in particular—extremely hard.

The longer the Strait of Hormuz is closed, and the longer Persian Gulf oil production is offline, the more challenging the sulfur supply situation gets for these countries.

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Not The US

The disparity in sulfur prices shown above brings us back again to the caveat about narratives. Recognizing the bias within media narratives is crucial to making sense of media reporting on any issue.

While ZeroHedge is focusing on overall global industrial impacts, America’s military thinkers at West Point see potential military and national security concerns arising from the supply dislocation.

While the United States produces significant sulfur domestically, the near-total disruption of shipping through the Strait of Hormuz, which accounts for approximately 50 percent of global seaborne sulfur trade flows, has compounded an already tight market. US sulfur prices have increased 165 percent year-over-year to over $650 per metric ton; and now the price has surged by 25 percent just since the Iran war began. This makes domestic procurement fiercely competitive, while also threatening the import of specific ultra-high-purity grades required for advanced manufacturing. It is squeezing one of the most consequential inputs to modern industrial power.

The West Point narrative bias is clear, and it emphasizes immediate logistical and pre-logistical impacts without regional differentiation. While logistics is hugely important to successful warfighting, what matters most is having better logistics than potential adversaries.

As with all commodities, all markets have some exposure when there is a supply rupture. That is certainly the case with sulfur. Just this month US sulfur prices have surged 34%.

Yet a price surge is not the same as a supply dislocation. One point the West Point narrative brushes past is that the US is itself a major producer of sulfur—it is the number 2 sulfur producer in the world, after China.

Even more significantly, virtually all the sulfur the US does import comes from right next door, in Canada.

As the Strait of Hormuz does not lie between the US and Canada, it is safe to say that the war with Iran is not disrupting physical supply chains for sulfur.

We should also note the quantities of sulfur the US imports: 999,718,000 kilograms is just under 1.1 million tons. The US produces domestically ~8-8.6 million tons of sulfur, which means the US imports between 12% and 13% of its annual sulfur demand.

The price of sulfur in the US is up because the price of sulfur is up worldwide, but the US still has physical access to nearly all the sulfur it uses. The same is not true for Africa, nor is it true for Asia (including China).

Hence the extreme price differentials between sulfur prices in the US and sulfur prices in China. China is grappling not just with a price shock but a supply shock. The US is experiencing only the price shock.

The difference becomes clear when we consider last month’s Producer Price Index data. Virtually all the inflation surge the United States experienced within producer prices in March was due to energy-related products, and fuels especially.

Outside of energy-related products, there was not a lot of inflation in March, and even some disinflation.

Thus far at least, the inflation impact of the war with Iran is still narrowly confined for the US. That could change, and if the war lasts long enough it almost certainly will change, but as of this writing it has not yet changed.

That lack of broad inflation so far in the US economy highlights the particular advantage the US has with respect to Iran and the Middle East: the US is considerably less reliant on the Middle East than is Europe or Asia. Even a cursory glance at price surges for oil and gas both here and in Europe illustrates that, for natural gas especially, the price differentials are quite significant.

Dutch TTF natural gas is still up nearly 40%, and that’s after talks and rumors of talks have calmed markets down. US natural gas has actually declined in price.

Even West Texas Intermediate crude is up less than its European counterpart, Brent Crude.

Diesel prices show the same disparate impact from the war with Iran:

Energy inflation is bad in the US, but it’s worse in Europe.

The same is proving true for industrial chemicals such as sulfur/sulfuric acid. There is a cost burden from the war that is being felt by the US, but it is being felt far more in China, in India, and in Europe.

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A World Problem

The economic reality of the war’s impact is still very much what I pointed out a few days ago:

Whether Starmer or any other world leader agrees with Donald Trump on the war itself, Iran’s closure of the Strait of Hormuz is far more a UK issue, a France issue, an India issue, than it is a US issue. Even if one concedes that Operation Epic Fury is not “Europe’s war”, the closure of the Strait is indisputably Europe’s problem.

The economic fallout from the Strait’s closure was never going to be limited to just oil or diesel, even if those are the commodities that get noticed first. Yet, as we are seeing with sulfur and sulfuric acid, the dislocations brought on by the closure of the Strait of Hormuz are felt to a far greater degree nearly everywhere but the United States. In nearly every regard, the US is experiencing far smaller economic impacts than the rest of the world.

Does this make ZeroHedge’s take on sulfur production inaccurate? Arguably, it does.

Yes, global sulfur production is disrupted. Yes, sulfur prices are up significantly even in the US. These aspects of the war and its consequences are undeniable.

Yet what ZeroHedge overlooks, what the military thinkers at West Point gloss over, is that the cost from that rupture is falling on different parts of the world to different degrees. What ZeroHedge overlooks, and what the military thinkers at West Point gloss over, is that the US has the curious good fortune to be bearing the smallest portion of the overall costs from Operation Epic Fury, the war with Iran, and the current blockade of the Strait of Hormuz.

In a race to the bottom of global sulfur supply ruptures, the winning position is to come in last. At present that position belongs to the United States.

Closing the Strait of Hormuz is imposing a number of supply shocks and dislocations on the global economy. There is a cost to each of those supply shocks and dislocations.

So far, the burden of those costs is falling on just about everyone’s shoulder’s except the United States’.

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The Producer Price Index for final demand increased 0.5 percent in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved up 0.5 percent in February and 0.6 percent in January. (See table A.) On an unadjusted basis, the index for final demand rose 4.0 percent for the 12 months ended in March, the largest 12-month advance since increasing 4.7 percent in February 2023.

A jump to 4% in factory gate inflation is a sizable surge in any context. At the same time, the context for March’s sizable surge includes Wall Street projections of 4.6% year on year factory gate inflation in March and a Trading Economics forecast of 4.4%.

When an inflation print comes in nearly half a percentage point below forecast, that is unquestionably good news.

Nor is the cooler inflation print the only remarkable item in the summary. Core factory gate inflation actually declined in March, and prices on key items such as fertilizers were impacted by the energy shock far less than might have been anticipated.

We still have inflation, and the PPI summary is still indicating further inflation rises in the CPI data especially.

We do not have signs of hyperinflation—at least, not yet. As the war with Iran is still ongoing, and we still do not know what the endgame for that conflict looks like, we do not know how much more of an energy price shock has yet to be delivered.

The PPI report was a backhanded sort of good news. Energy prices surged. Other prices…not so much.

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Core Producer Price Disinflation

Without a doubt the factor that made the March Producer Price Index Summary a better-than-anticipated report was the decline in core factory gate inflation year on year, even as the headline PPI surged up.

The cooler core inflation print means that, just as with the Consumer Price Index report, inflation has not spread beyond energy into the broader basket of goods and services.

Even month on month saw a decline in core inflation.

Headline producer price inflation barely increased at all month on month, even though it surged year on year.

That core producer price inflation cooled significantly even as headline inflation rose is yet another confirmation that, thus far, the inflation brought on by a war-related energy shock is largely confined to energy, and has not percolated through the wider data set of producer prices.

No matter the surge in headline inflation, a report with declining core factory gate inflation has at least that much good news in it.

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Even Energy Was Cooler

That energy prices surged at the factory gate in March is not at all surprising. Month on month factory gate inflation for energy prices soared over 8%.

After over a year of continued disinflation and deflation, energy price inflation came roaring back in March.

The reasons for the energy price surge are self-evident: Operation Epic Fury and Iran’s closure of the Strait of Hormuz, which has pushed energy and fuel prices up globally.

Surprisingly, despite the significant overall surge, some fuel prices did not rise as fast, and some even declined. Unprocessed fuels dropped by more than 40% month on month in March. In a month defined by energy price inflation, that is a remarkable shift.

Processed energy goods, on the other hand, “only” rose a more modest 11%—still high, but not egregiously so, given the headline data.

There are number of potential reasons why we are seeing anomalous price shifts within energy. In particular, the need for different types of crude oil to economically produce individual fuel types could very well amount to a price dynamic among some fuels that is far less dependent on the availability of Persian Gulf feedstocks.

Regardless of the reason, the end result is still that, even for energy prices, the March PPI report was better than it could have been.

Food prices, the other component of headline inflation outside of the core metric, actually fell in March.

The spike in food price inflation in February proved to be an outlier, with deflation once again showing itself the dominant trend in factory gate inflation for food.

For March, the energy price shock remained confined to energy prices. While that will likely not remain the case for long, for the moment we are not facing a broad inflation surge that spans multiple subindices.

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Not All Fuel Prices Are Equal

The surprising drop in unprocessed fuel prices highlights an important feature of energy and fuel prices: not all fuel prices are the same.

While both retail diesel and retail gasoline prices surged in March, diesel experienced the more dramatic price increase.

Even on futures markets, we see diesel prices increasing by a greater percentage than either gasoline or crude oil itself.

This is particularly relevant when looking at marine fuels. While Marine Gas Oil (MGO), a refined product very similar to diesel, rose significantly in March, the heavier Intermediate Fuel Oil and Very Low Sulfur Fuel Oil both rose considerably less.

Diesel and marine fuels are the essential components of all transportation and logistics. Goods cannot be shipped anywhere if there is not fuel for both ships and trucks.

While MGO is a cleaner alternative to even VLSFO, the far more moderate price increases in IFO and VLSFO will undoubtedly make those two refined products more attractive as bunker fuels for at least the short term.

One reason the apocalyptic predictions surrounding the price rises in diesel have not yet come to pass is that diesel is simply not the whole story on fuels needed to move cargo around the world.

Fuel prices are up not just around the world but across the board. Higher fuel prices are going to challenge freight operators, as they struggle to move goods, pay for fuel, and keep showing a profit. However, while fuel has become significantly more costly, we have so far not seen the levels of fuel scarcity we would need to see to produce the apocalyptic knock-on effects some have predicted would emerge.

If the war with Iran drags on, and especially if the closure of the Strait of Hormuz drags on, there is a possibility we could reach those levels of fuel scarcity. We are not there yet, and we should not reflexively assume that we will get there. A sudden outbreak of peace and we do not get there, now or ever.

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Goods Prices Surged, Service Prices Sagged

Goods were the other subindex besides energy that saw a significant inflation surge, with goods prices climbing 1.6% in March.

In contrast, service prices barely rose at all in March.

Even within the goods subindex, energy goods were a significant contributor to overall inflation.

By comparison, the contribution of goods besides food and energy was quite a bit less.

Even within goods, by far the dominant factor driving factory gate inflation in March was energy. But for the surge in energy prices, there was not much factory gate inflation in March at all.

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Good News For Fertilizer

Another product that warrants scrutiny within the Producer Price Index is fertilizer.

Several fertilizers, particularly ones to enrich phosphorus and nitrogen in the soil, are derived from fossil fuels. Given the surge in crude oil prices, we might expect to see dramatic increases in fertilizer prices as well.

Except we haven’t seen that—at least, not yet. For both nitrogenous and phosphatic fertilizers, producer price inflation was fairly muted in March.

If we look at the year on year inflation prints for both, we see even less indication of a surge easily connected to the war with Iran.

Factory gate price increases year on year for nitrogenous fertilizers have been rising since the start of the year, coming out of a prolonged deflation phase where much of the price surges of the 2022 hyperinflation cycle were unwound.

Phosphatic fertilizers have seen barely any price increase year on year.

This is particularly good news for farmers everywhere. Fertilizers are an essential link in the food supply chain. Without fertilizers crop yields will decline, harvests will be more sparse, and food price inflation will rise. Food price inflation today can become food insecurity tomorrow, especially among the poorer nations in the world.

As with prices for other goods, we may yet see a surge in fertilizer pricing if the war with Iran drags on long enough. If we do see a surge in fertilizer pricing we could see issues with falling harvests and rising food price inflation—and today’s food price inflation can become tomorrow’s food insecurity.

However, as with everything when it comes to either producer prices or consumer prices, the key word in every assessment is “if”. If certain trends prevail then certain outcomes will happen—but if other trends prevail then other outcomes will happen.

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A Look Ahead?

The Producer Price Index has long been seen as a predictor of coming levels of inflation as reported by the Consumer Price Index. One way of looking at the two indices is that the PPI looks at prices when goods are at the loading dock, while the CPI looks at prices when goods are at the cash register with the consumer making the purchase. While that is an oversimplification in many ways, the analogy does illustrate how the PPI can (and occasionally does) anticipate the CPI.

We already have an energy price shock within consumer price inflation. The surge in crude prices has been sufficiently dramatic that it wasted no time in making its presence known within consumer prices.

The March PPI shows the same energy price surge we saw in the March CPI. If the PPI is a predictor of the CPI, then we are looking at the possibility of a further surge in energy prices within the CPI for April, and possibly even for May. We are not (yet) looking at a surge in prices beyond energy goods within the CPI for April or May.

Certainly if the war with Iran continues, and especially if the Strait of Hormuz remains closed, we will see additional price surges primarily in energy. At some point, however, the rise in fuel costs is going to put pressure on other prices, and what starts out as energy price inflation almost exclusively could become far more broadly based. If that should happen, it may be the beginning of a new hyperinflation cycle.

Alternatively, sustained high fuel prices could also suppress consumption, potentially even driving down some prices. In that scenario not only would broader goods prices largely stay the same or decrease, we could also see further declines in employment as well. As I have mentioned before, that scenario could lead us into a stagflationary crisis similar to what this country went through in the 1970s.

There are no crystal balls to tell us which scenario will unfold. If the war with Iran comes off the rails we could easily see a fairly catastrophic inflation scenario emerge. If the war with Iran ends tomorrow we will, in all probability, see a drop in crude oil prices and a rise in Persian Gulf crude oil production.

The economic impacts of the closure of the Strait of Hormuz, along with the wider war prosecuted by Iran before the ceasefire, are likely to persist for some time after the war ends, even if by some miracle the war ends tomorrow. Even if the war ends we will not see an immediate return to pre-war price levels.

For now, those economic impacts are confined primarily to energy. If the price surge lasts long enough, we will see higher fuel costs push up prices in other categories as well, as producers confront the increased cost challenges of bringing their goods to market. However, we do not have that now, and if the war ends quickly we may not have it ever.

If.

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The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.9 percent on a seasonally adjusted basis in March, after rising 0.3 percent in February, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.3 percent before seasonal adjustment.

We knew this report was coming. We knew the energy shock was coming.

It was obvious there would be an energy shock when the February CPI print came out.

The energy price inflation spike in March was an economic shock. The news that there was an energy price inflation spike in March was not at all shocking.

Yet there are questions lurking within the data, questions that may end up shaping our understanding of what happens with consumer price inflation in April and throughout the summer months.

Energy prices were up, and so headline inflation was up. Core inflation, however, was far more muted. For some categories inflation is even cooling.

Cooling inflation can be a sign that demand is decreasing. If demand is decreasing then economic growth is slowing.

Slow economic growth coupled with an energy price shock is how we got the stagflation crisis of the 1970s.

It is far too soon to conclude that we are seeing stagflation in the US economy. It is not too soon to wonder if what is unfolding is a fresh hyperinflation cycle or a stagflationary crisis.

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Headline Inflation Rose On Energy Shock

The year on year inflation print shows a dramatic shift for headline inflation in March.

However, the rise in core inflation seems almost a routine fluctuation. Month on month, that core inflation actually cooled gets lost against the backdrop of headline inflation’s energy-driven surge of nearly 0.87%

The reason for the disparity, of course, was energy prices, all of which soared in March as a consequence of Operation Epic Fury, President Trump’s war with Iran. That war has resulted in energy prices rising 10.88%.

As we would expect from a surge of that magnitude, it was an across-the-board increase: Crude oil, diesel, and reformulated gasoline all soared in March.

Natural gas actually declined—a stark demonstration of the significant of energy independence.

That market prices for both crude and refined products are driving consumer price inflation for March is largely confirmed by the fact that, within energy price inflation, the primary drivers were the costs for diesel and gasoline.

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Outside Of Energy, Inflation Cooled In March

While energy prices were soaring, other parts of the March CPI data were showing disinflation and even outright deflation.

Food prices actually dropped in March.

Inflation cooled for services.

Goods, however, saw inflation heating up significantly. Nondurable goods saw month on month inflation of nearly 2.6%.

Even durable goods, which have been printing deflation in recent months, returned to month on month inflation.

Intriguingly, shelter price inflation also rose, with the more conservative BLS subindex printing 0.3% month on month and the more forward-looking ZORI index printing close to 0.4% month on month.

However, outside of energy, the inflation surge was mostly limited to nondurable goods—which is why month on month core inflation actually fell.

It is this seeming dichotomy between core inflation and energy price inflation (and thus headline inflation) which compels us to question if this is the beginning of a stagflationary crisis, with an energy price surge colliding with a cooling economy, or if this is a simple price shock.

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Is The Economy Heating Up Or Cooling Down?

Assessing the risks from the price shock which hit the US economy in March begins with determining whether or not economic activity is increasing or decreasing—whether the economy is heating up or cooling down.

As I have discussed previously, what separates ordinary inflation from stagflation is the level of economic expansion that is (or is not) occurring.

Conceptually, stagflation is when rising prices collide with low economic growth or even economic contraction1.

Stagflation combines stagnant economic growth, high unemployment, and persistent inflation.

Obviously we have rising prices in March. Do we have low economic growth?

We demonstrably have year on year growth in real GDP that has been trending down since the end of 2023.

We demonstrably have year on year growth in Real Personal Consumption Expenditures that has been trending down since the start of 2025, although there are signs that trend may be reversing in 2026.

We demonstrably have year on year real investment growth that is charitably described as “volatile” but which has declined overall since 2021 and 2022.

We demonstrably have year on year real growth in imports and exports that is also broadly trending down.

We demonstrably have what many will receive as good news, year on year real growth in government spending that has trended down since the end of 2024 and turned negative at the end of 2025.

Every major contributing sector to overall Gross Domestic Product has a growth trend that is down. This confluence of trends arguably points to an economy that is softening and slowing down.

That is certainly confirmed by the BEA’s report that real GDP growth fell off a cliff at the end of 2025.

President Trump’s claims of a “Golden Age” in the US economy notwithstanding, there is more than a little evidence to sustain the assessment that the economy is cooling down and not heating up.

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The Job Recession May Not Be Over

While the March Employment Situation Summary report showed far better job growth than anticipated, it is far from clear that this country’s jobs recession has ended.

The Employment Level from the Current Population Survey (Household Survey) portion of the jobs report shows that employment peaked in this country at the start of 2025 and has trend down since.

The Employment-Population Ratio, also from the Current Population Survey, has been declining since 2023.

While unemployment has declined since last fall, in both real and “official” terms, the longer term trend in joblessness is still one of increase rather than decrease.

While the data does not (yet) point to an economy that is unequivocally suffering, the data does show that a considerably amount of job growth is needed for American workers to participate in President Trump’s “Golden Age”.

Rising joblessness trends and falling employment levels certainly call into question the premise that the US economy is growing. As a rule, we look for growing economies to have increased demands for labor. If the economy is growing we should expect to see unemployment trending down and the employment level trending up. At present we see the polar opposite of that.

Even with the positive headline numbers on the March jobs report, it would be a considerable stretch given the current data set to argue that the jobs recession if over. We are not there yet.

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Is This Stagflation?

The degree of stagflation risk posed by the March inflation surge hinges entirely on whether the economy is robust and growing, or sclerotic and declining.

Certainly for the first three quarters of 2025, economic growth overall was strong for an economy as large as America’s.

The fourth quarter GDP print, however, breaks with that narrative completely.

While we cannot infer a trend from a single quarter, there are several trends across the whole of the economy which suggest the fourth quarter GDP numbers may be a confluence of negative factors and not an economic outlier after three strong quarters of GDP growth.

Consumption growth has been softening.

Investment growth has been volatile but broadly declining.

Imports and exports have been declining.

The realities of the ongoing jobs recession also argue against presuming the US economy is hale and healthy. With the Employment Level and Employment-Population Ratio both declining, while joblessness is increasing, the labor portion of the economy is far from in good health.

The sudden rise in fuel costs could potentially further hinder consumption, as every dollar consumers put into their vehicle’s fuel tank is a dollar that cannot be spent elsewhere. That same rise could also produce shipping and transportation dislocations, as trucking concerns must grapple with a price surge that likely exceeded all of their budget forecasts and resource planning.

If that proves to be the case, we will see a drop in consumption over the next couple of months simply because there will be less available to consume, while the resulting scarcity shock will push prices for many goods higher even as overall demand is pushed lower.

That is the stagflation scenario.

However, if US oil producers are able to produce more, and oil refinery logistics can recalibrate for the sudden shifts in global energy markets, even before the Persian Gulf flows are restored the US could see fuel prices and supply trend back towards pre-war levels. Increased oil production could produce job and wage benefits which would help end the jobs recession and bring more Americans to the level of prosperity intimated by Trumpian rhetoric of a “Golden Age.”

That is the inflation scenario.

It will be a few months still before we see which scenario is the one unfolding before us. Jobs, consumption, and inflation numbers all have to trend across a few months to know what the trend is.

What we know for now is that March energy price inflation printed considerably than it has been, while core inflation is still cooling. With only limited improvement in market prices for oil and its refined products, there is little reason to anticipate at present that April will bring any improvement. April could quite easily see even worse inflation. People may be hard pressed to distinguish between the present inflation surge and that from the start of the 2022 hyperinflation cycle.

What happens beyond April rests entirely on the outcome of the next phase(s) of the war with Iran. Will the Strait of Hormuz be reopened? Will Arab oil production be quickly restored? Will the Persian Gulf be consumed in a paroxysm of violence which decimates Middle East oil flows for the next few years?

All of those scenarios lie with the realm of current probability. One of them will happen—but we do not know which one.

Will we have inflation or stagflation? So long as the fog of war lingers over Operation Epic Fury, we are not going to know.

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“We have been at it now for 21 hours, and we’ve had a number of substantive discussions with the Iranians. That’s the good news,” Vance said. “The bad news is that we have not reached an agreement, and I think that’s bad news for Iran much more than it’s bad news for the United States of America.”

With regards to the war and to the broader impasse between Iran and the United States, not a lot has changed over the past few days. My assessment of the state of affairs in the Persian Gulf is broadly the same as it was four days ago:

All scenarios are still on the table. The ceasefire could collapse today, tomorrow, or next week. The Khamenei regime could collapse today, tomorrow, or next week.

There is, however, one notable shift, and we shall have to see how it plays out: President Trump is threatening to impose his own blockade on the Strait of Hormuz.

Is this a collapse of the ceasefire? Not yet, if only because as of this writing there are no new reports of air strikes, missiles, or drone attacks from either side. I will not be surprised if that changes even within the next few hours.

Will this change the strategic calculus in the Persian Gulf? It could. How the blockade unfolds will determine its ultimate impact. For now President Trump’s message to Iran is clear and unequivocal: If the United States’ demands are not met, Iranian oil will not flow.

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21 Hours Of Talking Without Resolution

As diplomatic negotiations go, the Islamabad talks were put together with blinding speed—and collapsed with equally blinding speed.

We must remember the ceasefire was declared less than a week ago, when Donald Trump and Iranian Foreign Minister Abbas Araghchi jointly accepted a Pakistani ceasefire proposal, and agreed to the talks.

Yet even before the talks began, Iran put out some extraordinary claims on what agreements had already been made (or not made)—including an assertion that the US agreed to release some $6billion in frozen Iranian assets.

That claim was quickly denied by the US, and there have been no independent reports of any frozen Iranian funds being released to the Khamenei regime.

The denial of such claims did not stop the head of the Iranian delegation, Parliamentary Speaker Mohammad Bagher Ghalibaf, from doubling down on them during the runup to the actual talks themselves.

While we cannot say if Ghalibaf genuinely believed those claims to be true or was merely attempting to gain leverage in the negotiations, we can say that the effort produced no leverage against the US negotiating team of Vice President JD Vance, Special Envoy Steve Witkoff, and Jared Kushner, President Trump’s son-in-law. In remarks made prior to leaving Islamabad, JD Vance made it clear that Iran did not agree to meet US “red line” conditions for peace.

As I have noted previously, the US “red line” conditions are easily and succinctly stated:

• Iran will not enrich uranium

• Iran will not pursue nuclear weapons

• Iran will not develop long range ballistic missiles

• Iran will not maintain its network of terror militias across the Middle East

• Iran will not close the Strait of Hormuz

• Iran will not threaten Arab states in the Persian Gulf

While we do not know what was actually said during the negotiations themselves, there is little reason to presume the US position on any of that has been altered.

With that as a backdrop, we perhaps should not be surprised that President Trump chose to respond to the failure of the talks by blockading the Strait of Hormuz.

Regardless of how much control Iran has or does not have over the Strait of Hormuz itself, there is little doubt which navy can control the egress to the Strait into the Gulf of Oman. The United States Navy will now be interdicting shipping traffic out of the Strait of Hormuz, thereby cutting off even Iran’s oil exports.

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Did Trump Anticipate This?

While it is purely speculation on my part, I do wonder if the Trump Administration had not been preparing all along for the talks to fail.

While the talks were ongoing, the Trump Administration announced the US Navy was beginning minesweeping operations in the Strait to clear out the Iranian mines.

CENTCOM said USS Frank E. Peterson and USS Michael Murphy transited the strait and operated in the Persian Gulf in a broader mission aimed at removing mines previously laid by Iran’s Islamic Revolutionary Guards Corps.

“Today, we began the process of establishing a new passage and we will share this safe pathway with the maritime industry soon to encourage the free flow of commerce,” said CENTCOM commander Gen. Brad Cooper.

President Trump, in typical Trumpian fashion, was even more braggadocious, not only calling out Iranian failures in reopening the Strait but also the failures of other leading nations to step up and help defend internationally recognized rights of transit passage through the Strait.

All this he posted to social media as the Islamabad talks were getting underway—whatever else one wishes to conclude about Donald Trump’s social media postings, one thing seems clear: Donald Trump was not worried about the Iranians agreeing to reopen the Strait because the US Navy was already starting to reopen the Strait.

One reason the US was doing this was advanced by the New York Times, and has not been refuted by the Khamenei regime: Iran does not know how to locate or remove its own mines from the Strait.

Iran used small boats to mine the strait last month, soon after the United States and Israel began their war against the country. The mines, plus the threat of Iranian drone and missile attacks, slowed the number of oil tankers and other vessels passing through the strait to a trickle, driving up energy prices and providing Iran with its best leverage in the war.

Iran left a path through the strait open, allowing ships that pay a toll to pass through.

Iran’s Islamic Revolutionary Guards Corps has issued warnings that ships could collide with sea mines, and semiofficial news organizations have published charts showing safe routes.

Those routes are limited in large part because Iran mined the strait haphazardly, U.S. officials said. It is not clear that Iran recorded where it put every mine. And even when the location was recorded, some mines were placed in a way that allowed them to drift or move, according to the officials.

If that report is true, then Iran’s claim of control over the Strait is ultimately illusory.

If that report is true, then Iran cannot guarantee safe passage through the Strait to any ship, regardless of whether or not it pays a toll. If Iran does not even know where the mines are, it does not know what the safe sea lanes are.

The New York Times reporting relies on unnamed US officials, and provides no solid provenance for those assessments, but Iran has not said or done anything to rebut the reporting. While we do not know the New York Times is correct on this, neither can we assume the New York Times is wrong.

If the New York Times reporting is at all factual, then the failure of the talks could suit President Trump just fine. If the US Navy succeeds in clearing the mines and reopening the Strait while maintaining a blockade in the Gulf of Oman, Iran’s strategic leverage collapses.

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Oil Prices—Iran’s Real Target?

While the geopolitical calculus over the Strait of Hormuz remains very much an exercise in speculation, what is not a speculation is the impact these events have had on energy prices.

Even with the encouragements of the Islamabad talks getting underway, spot prices for diesel contracts are as of Friday trading still 44% above pre-war levels.

Not only are energy prices up, but significant differentials have emerged between European benchmark energy contracts and American ones, especially for natural gas.

Nor is that the only energy price differential to emerge. Since the war began, Arab “heavy” (or “sour”) crude—the crude type from which diesel is extracted—has gained a significant price premium both over benchmark oil prices for Brent crude and West Texas Intermediate.

Iran’s heavy crude has not had the same price appreciation.

While it is too soon to assess exactly how this shift in pricing—the Arab premium did not exist prior to the war with Iran—will impact global energy economics, if this becomes the “new normal” for oil prices, there will be significant impact.

Even without this shift in oil pricing becoming more or less permanent, the present reality remains that the Strait of Hormuz is not open to commercial traffic, with some two thousand vessels trapped within the Persian Gulf.

Even though Iran nominally has declared the Strait of Hormuz open, most of the Strait’s 20 million barrels per day of oil flow is currently blocked, and the few oil pipelines in the Persian Gulf region cannot even begin to compensate for the disruption in flows of seaborne crude.

At present, more than 90% of normal traffic through the Strait is idled on side or the other, waiting for the US and Iran to sort out their differences.

With Persian Gulf oil as well as natural gas still bottled up in the Persian Gulf, unable to safely transit the Strait, a substantial portion of global energy flows have been taken at least temporarily offline.

This reality has not gone unnoticed by the Arab states. As the Islamabad talks were heading toward their unsatisfactory conclusion, the UAE oil minister Dr. Sultan Al Jaber posted on X defending the Strait as an international waterway and condemning any attempt by Iran to close or regulate it.

Was this part of Iran’s strategy all along? Have they closed the Strait and attacked Arab oil and natural gas production infrastructure precisely to alter the pricing dynamics of the Persian Gulf?

To answer that question now would be pure speculation. However, during the Islamabad talks, an account on X purportedly belonging to Iran’s new Supreme Leader Mojtaba Khamenei posted a sovereign claim by Iran to the Strait.

Whether that social media posting represents the official stance of the Khamenei regime is uncertain. Still, the posting is in line with earlier regime commentary on the status of the Strait and Iran’s claimed “rights” over it.

Has Iran used the war as an opportunity to improve its own export position in the Persian Gulf by disrupting oil production by the Arab states in the region? We cannot dismiss that possibility.

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What Comes Next? Mostly Questions

As has been true throughout this war, we cannot say with certainty what will unfold next.

Will oil prices surge again when trading resumes after the weekend? At least for the immediate term, that is a likely result.

Will the Strait of Hormuz reopen? Eventually it must, but there is no way to ascertain any definitive timeline as to when.

Presumably the US Navy will continue minesweeping the Strait to remove Iran’s rogue mines. Presumably the US Navy will also interdict traffic coming out of the Persian Gulf in much the same way it interdicted shipping to and from Venezuela previously. That would mean that oil flows will resume not when Iran says they will but when the US says they will.

Until the Strait reopens, global energy flows and petrochemical logistics will remain disrupted. While not necessarily the energy apocalypse some are predicting, the longer the disruption prevails the greater the impact it will have on the global economy.

Here in the United States, retail fuel prices have surged, and diesel especially is flirting with highs last seen during the 2022 hyperinflation cycle.

With the failure of the Islamabad talks, we can safely presume that retail diesel prices will continue to move higher at least for the next few days and possibly weeks.

Already the impacts are reverberating into the wider US economy, with the March inflation numbers surging. With no prognosis for a reversion to pre-war energy price levels, within the US inflation will almost certainly rise again in April, driven primarily again by energy prices.

The impact of the diesel price surge on the world’s economies is likewise certain to severely negative. Diesel is the primary fuel for trucking operations worldwide. The cost for that fuel has increased worldwide by roughly 50% in the span of just a few weeks. Transporting goods overland is quite a bit more expensive today than it was just a month ago, and there is every reason to presume it will be more expensive a month from now than it is today.

That is a logistics shock which, while unlikely to completely halt global commerce, is quite likely to create new logjams not unlike the post-COVID supply chain ruptures experienced in 2021 and 2022, and which further contributed to the 2022 hyperinflation cycle globally.

The immediate economic ramifications of the Strait’s continued closure are fairly straightforward. These are things we know must happen because these are the consequences of Persian Gulf oil not being allowed to flow.

Less certain is what other nations besides the United States will do in response. Virtually all nations have affirmed that the Strait of Hormuz is an international waterway, yet the United Nations Security Council has been unable to pass even a resolution to that effect, much less one calling for the Strait to be reopened by force if necessary.

Geopolitically, what we have now are mainly questions.

Are the nations of the world content to sit passively on the sidelines while 20% of global energy flows are effectively cut off? So far, they have been.

Will the US blockade of Iranian traffic out of the Strait of Hormuz bring enough global pressure to bear that other nations will be forced to take stand and do something, either with the United States naval effort or against it? Prior to this war, I would have speculated the answer to be “yes”, but the willingness of even America’s NATO allies to remain uninvolved in protecting energy flows which demonstrably impact their economies far more than they do the US economy makes that presumption extremely problematic.

The larger and still unanswerable question coming out of this war: what is the future of the current maritime trading order which is the foundation of nearly all the world’s economies? Can global commerce proceed smoothly when vital waterways are vulnerable to the whims of various regional powers and conflicts?

Corollary to that is what force protects those vital waterways? Can any force protect them?

As regards the propriety of the war itself, and of Operation Epic Fury, Iran’s responses and obvious duplicity just prior to the Islamabad talks leaves another awkward question hanging: what is the alternative?

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From the preceding month, the PCE price index for February increased 0.4 percent. Excluding food and energy, the PCE price index also increased 0.4 percent.

From the same month one year ago, the PCE price index for February increased 2.8 percent. Excluding food and energy, the PCE price index increased 3.0 percent from one year ago.

Year on year, the numbers aligned with Wall Street as well as Trading Economics almost perfectly.

Even core inflation fell right in line with Wall Street’s projections.

While the numbers may have been in line with Wall Street’s expectations, the Cleveland Fed’s InflationNow nowcast was more noticeably off the mark, under-assessing inflation by 0.1pp year on year for the headline and core numbers.

Still, February’s inflation data on the surface presented no surprises whatsoever. On the surface, February’s inflation data was, like January, “more of the same.”

We should enjoy that. Next month will be a completely different situation. Whatever else we can see in the February PCE data, one thing is already clear: most if not all of the trends within will be ended by the war with Iran and the energy price shock it has delivered to the world.

Yet when we peel back the layers, we see that inflation was already ramping up even before the start of the war with Iran. Energy prices were up, and durable goods prices especially were up. Consumption was up. Disposable personal incomes were down.

Even before the first bombs fell in Operation Epic Fury, February’s inflation data were precursor and prelude to the inflation shocks coming in March and April.

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Headline Numbers Were Predictable…And Predicted

When the data meets expectations, finding a meaningful comment becomes a bit of a challenge. We talk about surprises. Normalcy invites little in the way of discussion.

On the surface, the PCE inflation data did meet expectations. Headline inflation remained the same, with the core data year on year printing a slight decline.

Month on month, the top level data looked even better. Headline inflation was up, but core inflation cooled.

On the surface at least, things are not looking bad with respect to consumer price inflation, although if this were the whole story we would again have to wonder if the US economy was slipping into stagnation.

As is always the case with economic data, however, this is not the whole story.

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Energy Price Inflation Returns

When we dig deeper into the details we begin to see some pricing shifts in energy and durable goods, but also increased consumption.

The most notable shift was the return of energy price inflation.

This is not surprising, given oil’s steady rise throughout February.

February saw an across the board increase in energy prices, with crude oil, diesel, and reformulated gasoline all rising approximately 10% on the month.

When market energy prices are rising across the board, there is little left to pull prices back down again.

Food price inflation also heated up incrementally in February, rising from .23% to .25% month on month.

The combined impact of both rising energy price inflation and food price inflation for February was to hold the headline inflation metric constant even as the core metric ticked down.

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Durable Goods Prices Jumped

Drilling into core inflation for February, the most significant part was the dramatic increase among durable goods prices of more than 1% month on month.

Even nondurable goods prices were up significantly, an increase magnified by January’s flirtation with deflation.

By comparison, service price inflation cooled significantly, falling by half to 0.21% month on month.

As is always the case, there are a multiple of forces which can combine to push prices up. Perhaps the most noteworthy force for February was the rise in consumption, especially for durable goods.

With a significant rise in durable goods consumption, we should not be surprised that the increased consumption resulted in bidding up durable goods prices. That consumption rose overall further reinforces this possibility.

Rising consumption is broadly a good thing, as rising consumption largely translates into economic expansion and growth.

However, for February the rising consumption was not matched by rising real disposable personal income (RDPI). Against the incremental increase in consumption is a fairly substantial drop in disposable personal income.

The income drop is disconcerting. Not only does it presage the decline in weekly paychecks reported on the March Employment Situation Summary, the decline was the second largest since Donald Trump took office.

This was the continuation of an unpleasant trend, as real disposable personal income has been in decline since at least 2024.

One does not need to hold a PhD in economics to realize that declining disposable incomes will at some point put a constraint on how much consumption can increase. Potentially, this would explain why consumption peaked in late 2024 before trending down even before Donald Trump took office.

One reason stagflation hypotheses have lingered is because of declining metrics such as real consumption expenditures. When circumstances result in zero growth or very little growth for consumption, economic growth is simply not happening.

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March Will Break All The Trends

February saw signs that inflation was heating up in parts of the economy. The jump in durable goods especially was an indicator that inflation overall might be heating up even if just somewhat.

While the rise in consumption is, broadly speaking, a good sign, the drop in disposable personal incomes is not. The ongoing decline in disposable personal incomes is a distinctly worrisome trend. Lack of disposable personal income is a constraint on consumption, and it is distinctly possible that constraint has played a role in keeping inflation trending down in this country.

However, we know that March will not be the continuation of any such trend. Thanks to Operation Epic Fury and the war with Iran, we already know that March inflation will be significantly higher, and driven mainly by energy prices.

Wars are disruptive that way. We would anticipate that even without considering the impact of rising crude oil and diesel prices that we have seen throughout March. Even without consumption, even with a constraint on consumption from falling disposable personal income levels, the energy price shock from the war with Iran is going to reshape price levels and inflation across the whole of the economy.

We already know much of this because we have already seen some of the price shifts in real time.

While one month does not a trend make, the inevitable war-driven surge in consumer price inflation will force us to consider whether and to what degree a stagflation scenario might be unfolding in the US economy.

While the stellar jobs numbers for March work against such a scenario for March, labor markets have been toxic and dysfunctional for long enough that any dramatic and sustained surge in prices starts to look an awful lot like the 1970s, when rising unemployment collided with rising consumer prices. Certainly February’s PCE data does little to dispel such concerns.

If the war with Iran continues to drag on, and especially if the recently and still quite fragile ceasefire fails to hold, we might see inflation and unemployment combinations that look distressingly stagflationary. The inflation data from both January and February leave that possibility very much on the table.

The key word in that assessment, of course, is “if”.

If the war with Iran reiterates anything for us it is to not get ahead of the data. We know the March Consumer Price Index data will show surges in headline, energy, and core inflation. We do not know if April will bring major corrections to the March jobs data, nor do we know how long the inflation surge will last. We will not be concerned with stagflation if the inflation metric goes up and then goes right back down in the subsequent month.

Will we get back to something like February’s data once the war with Iran is over? That we do not know, and cannot know.

If oil prices remain elevated for whatever reason, we will not be returning to February-like numbers on inflation and consumption even after the war with Iran is over.

If oil prices drop down to pre-war levels, a return to February-like numbers on inflation and consumption is not at all out of the question.

February was the end of several trends regarding inflation and economic growth. We can see looking back that it was a precursor and prelude to the inflationary price shocks coming on from the war with Iran.

March will bring a jump in consumer price inflation. March may bring significant shifts in both income and consumption. We do not know what April will look like at all.

The fog of war is extending into the economics of wartime.

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We know this because, when it came to the war with Iran and Operation Epic Fury, self-anointed “expert” after self-anointed “expert” made their predictions, gave their projections, and what we have as of this writing was not what any of them anticipated.

Early yesterday evening, Donald Trump accepted Pakistan’s proposal for a two-week ceasefire.

A short time later, Iran followed suit.

As of this writing, we have the beginnings of a ceasefire and possibly peace between the United States and Iran.

As of this writing, the Strait of Hormuz is open for international shipping.

As of this writing, Persian Gulf oil flows are able to resume.

Will the ceasefire hold? We do not know.

Will the Arab states quickly restore pre-war production levels? That mightily depends on your definition of “quickly”. They will restore pre-war production levels, the only question is “when?”

We are still facing a dramatic surge in energy prices, and while the supply shock may be ameliorated at this point, we will see the beginning of that surge in the upcoming inflation reports. How much inflation are we going to get? We do not know and cannot say.

The analysts who predicted apocalypse, however, got it wrong.

The analysts who extrapolated a Trump win through the seizure of Kharg Island also got it wrong.

As I pointed out two weeks ago, all scenarios were still viable and still on the table.

Virtually every conceivable scenario for what happens next in this war remains very much on the table. Virtually every conceivable scenario could be what happens next in this war.

Which of those scenarios will we see unfold? Nobody knows.

The ceasefire scenario was the one everyone dismissed the most, and that was the scenario we were given.

All scenarios are still on the table. The ceasefire could collapse today, tomorrow, or next week. The Khamenei regime could collapse today, tomorrow, or next week.

Every prediction turned out to be wrong. Every “expert” making the predictions turned out to be wrong.

What comes next? I do not know, and neither do the “experts”.

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Energy Apocalypse Postponed

One of the more dire predictions that has emerged since Iran closed the Strait of Hormuz was that the world economy would crash in literally days.

The world is about to run out of diesel. This isn’t a hypothesis, a prediction, or a guess. It is a physical reality.

It will start with the poorest countries.

Laos will run out of diesel in three days (on April 5). It has zero refining capacity. It relies on imported diesel from Thailand. Already 40% of its diesel stations are closed. Cambodia and Myanmar will be next (on April 7). Then Bangladesh (April 9).

No one will notice, most likely. But on April 10, Pakistan will run out of diesel. Pakistan is a nuclear power with more than 250 million people.

They have eight days of fuel left.

Unless the Strait of Hormuz is fully re-opened, the world faces the largest humanitarian crisis since the Black Death of 1347-1353.

The price of diesel fuel has surged since the start of the war, that much is indisputable. Also indisputable is that, with the announcement of the ceasefire, diesel prices have declined dramatically.

Fuel shortages have also been a reported reality across Southeast Asia. Cities like Manila, in the Philippines, which normally has bustling traffic, is seeing much less traffic on the streets of late.

Those same fuel shortages are also prompting both China and the Philippines to reconsider their behavior in the South China Sea, as both countries would benefit from pursuing oil and gas exploration there.

But in a recent interview with Bloomberg, Philippines President Ferdinand Marcos Jr appeared to flag an interest in renewing joint oil and gas exploration with China in the South China Sea.

Filipino security analyst Chester Cabalza said there was an opportunity to tap into “huge deposits” of oil.

“We know we’ve been struggling with our relations with Beijing because of the 2016 arbitration,” he said.

“Some are saying that we should not close an energy deal with Beijing, because it means we are submitting on our claims in the South China Sea.

“But given the situation and the energy crisis … I think this is a wakeup call for us for how we should treat China.”

Is the world going to run out of diesel? Not yet, and, if the ceasefire holds, not for quite some time.

This does not mean there will not be shortages. The closure of the Strait of Hormuz has been hugely disruptive to oil production in the Persian Gulf. Iraq shut in as much as 70% of its crude oil production in early March after it ran out of oil storage capacity.

Crude oil production from Iraq’s southern fields has dropped by 70% since the start of the U.S. and Israeli war on Iran, with the average daily production at 1.3 million barrels, compared with 4.3 million barrels daily before the war began.

“Crude storage has reached maximum capacity, and the remaining output after the major cut will be used to supply the country’s refineries,” an official from Basra Oil Company told Reuters. The company is the state-owned entity that markets Iraq’s southern oil, which accounts for most of its production.

Around the same time, Saudi Arabia trimmed its oil output by 20%, and for the same reason—storage.

It will take time for the shut-in production to be restored, and that is assuming that the ceasefire holds and there is lasting peace.

Nor is it simply crude oil production that has been disrupted. Everything that comes from oil, from plastics to fertilizers, is disrupted, both because of the oil flows themselves and because the Persian Gulf states are major producers of a number of petrochemical products.

The Middle East accounted for over 40% of polyethylene exports in 2025, led by Saudi Arabia, and ships to nearly every region outside North America, the next largest exporting region.

Prices for plastics such as polyethylene (PE) and polypropylene (PP) have surged since the Middle East conflict began, tracking higher crude and feedstock costs.

“Global logistics have become uncertain, with up to 50% of polyethylene supply either offline, constrained or being impacted following the events in the Middle East,” said Dow CEO Jim Fitterling.

There is already a fuel and price shock unfolding in the global economy. It will continue to unfold for a while yet, and, as I observed yesterday morning, the shock will touch every sector of every economy.

Yet the world still has diesel. Unless (until?) the ceasefire collapses, the world will continue to have diesel. Barring a major turn of events, this worst case scenario will not come to pass.

The “experts” got it wrong.

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Kharg Island Not Taken—Yet

Equally misplaced were the predictions that US Marines would land on Kharg Island, seize the oil terminal, and shut down 90% of Iran’s oil exports.

Not only did that not happen, with a ceasefire in place it is not going to happen.

It is true that Kharg Island is where 90% of Iran’s oil exports are loaded.

As the data analytics firm Kpler detailed in a recent update, tiny Kharg Island — roughly eight kilometres long and five kilometres wide — is nevertheless the most critical piece of Iran’s oil economy.

“Iran has spent decades building pipelines from major inland producing areas to the island, turning it into the main collection, storage and loading point for crude before it moves to international buyers,” the update said.

That concentration leaves Iran extremely vulnerable. In the year before the war, 94 per cent of Iran’s crude exports left on tankers from Kharg. Any sustained disruption would immediately threaten most of the country’s export capacity, Kpler warned.

With virtually all of Iran’s oil exports flowing through Kharg Island, there is no doubt that seizing control of the island would cripple Iran’s economy in short order.

President Trump himself has hinted that he might order the seizure of the island, as part of a move to “take” Iran’s oil.

The US president told the FT in an interview on Sunday that his “preference would be to take the oil”, comparing the potential move to Venezuela, where the US intends to control the oil industry “indefinitely” following its capture of strongman leader Nicolás Maduro in January.

Speculation that an assault on Kharg Island was about to happen has been fueled by the deployment of units such as the 31st Marine Expeditionary Unit to the region, along with its floating base of operations, the USS Tripoli.

The U.S. Central Command said in a social media post that the USS Tripoli, which serves as the flagship for the Tripoli Amphibious Ready Group / 31st Marine Expeditionary Unit, arrived in its area of responsibility.

It’s the most updated of the amphibious warships, known as a “big deck,” which allows more room for F-35 Stealth Fighter Jets, Ospreys and other aircraft. The ship had previously been based in Japan when the order to deploy to the Middle East came almost two weeks ago.

While President Trump has consistently downplayed any desire to put “boots on the ground” in Iran, he nevertheless has moved some 50,000 troops into the Middle East—not enough for any sort of invasion of Iran itself, but enough for “small” operations such as the seizure of Kharg Island.

Commentators in corporate media outlets such as The Atlantic have played up the risks of an assault on Kharg Island, noting that the island is close to Iran and relatively far from US bases which could resupply any force sent to take the island.

But even without such tactics, the Iranians could make holding Kharg very difficult. The operation would likely take longer than 15 days, which is about how long an expeditionary unit can operate without logistical support. Kharg is far—140 miles—from American assets in Kuwait City, but very close to Iran’s coast. Resupply vessels would be exposed not only to cruise-missile fire but also to Iran’s “mosquito fleet,” which includes robotic drones, sometimes called unmanned surface vessels (Ukraine used similar devices to bottle up the Russian Black Sea fleet at Novorossiysk).

Kharg Island is a vital link in Iran’s oil economy. Kharg Island is vulnerable to an assault by shock troops such as the 31st Marine Expeditionary Unit. Kharg Island is difficult for a US force to hold.

Kharg Island is also still in Iranian control, and, assuming the ceasefire holds, likely to remain in Iranian control.

Predictions that Kharg Island was the next step in President Trump’s grand strategy were wrong. Predictions that US troops would get bogged down holding the island were wrong. Predictions that President Trump would turn off Iran’s economy like flipping a switch by taking Kharg Island were wrong.

Was taking Kharg Island necessary to force open the Strait of Hormuz? Not so long as Iran keeps to its side of the ceasefire bargain.

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What Comes Next?

Every analyst with projections and predictions aims to answer one simple question: “what comes next?” No matter what is being analyzed, no matter who is doing the analyzing, attempting to answer that question.

Looking ahead to see what might come next is fundamentally what I do with All Facts Matter.

The challenge is always recognizing where what is known ends and what is speculated begins.

We know that, as of late last night, futures pricing for Dutch TTF Gas—a main benchmark for natural gas pricing in Europe—is up some 70% since the start of Operation Epic Fury.

We know also that, as a result of the ceasefire announcement, crude oil prices have fallen from approximately 55% above pre-war levels to “only” 34%. We know that US natural gas prices have actually fallen over the course of the war—a demonstration of what US energy independence actually looks like.

We know that diesel futures pricing in the US and Europe followed crude oil prices down last night.

With diesel fuel contracts sill 40% above pre-war levels, the world is still looking at a significant price shock. A 40% jump in roughly six weeks is quite a price surge even for energy prices, which are routinely more volatile than prices for other goods (which is why inflation data separates energy prices from “core” prices).

We know that European inflation has already risen significantly during March, with the war with Iran a likely primary driver.

We know that energy inflation in Europe is the main contributor to that overall surge in consumer price inflation.

We can plausibly extrapolate that Europe will experience some economic turmoil as a result of this surge in consumer price inflation.

US inflation data for March is due out at the end of this week. We are almost sure to see similar effects within the US data. We can extrapolate that just from the fact that the Energy Information Administration has charted US retail gasoline prices up some 47% from the start of the year, and US retail diesel prices up some 62%.

We do not need to speculate if there is going to be a price shock hitting the US economy—we already have evidence that an oil price shock is hitting the US economy even now.

We can plausibly extrapolate that there will be a measure of economic turmoil in the United States from the swift rise in fuel prices. When fuel prices go up, everything gets more expensive, simply because it then costs more to move goods from supplier to consumer.

What we do not know is whether or not fuel prices are going to move higher.

What we do not know is whether or not oil prices are going to rebound and possibly climb even higher than before.

We do not know—and we cannot know—because we do not know—and cannot know—whether or not Iran will continue to keep the Strait of Hormuz open. We do not know—and cannot know—what the outcome of ceasefire and peace talks are going to be. We do not know—and cannot know—if the Iranian people are going to at last rise up and topple the Khamenei regime.

We did not know as late as yesterday afternoon if President Trump would give the go-ahead order for a massive bombing campaign against Iranian infrastructure. We did not know if there would be retaliatory Iranian strikes against the Arab states in the Persian Gulf.

Nobody knew what President Trump would ultimately do until he did it. Nobody knew what the Khamenei regime would ultimately do until they did it.

Nobody knows what either President Trump or the Khamenei regime will do next.

Over the past 72 hours the world has moved from Apocalypse Maybe to Apocalypse Soon and flirted with Apocalypse Now. As of this writing, the world appears to be at Apocalypse Later.

With respect to the war with Iran, that’s what we know.

With respect to the war with Iran, that’s all we can know.

Tomorrow may bring a peace breakthrough or it may bring a ceasefire breakdown. Both outcomes are plausible, and either outcome can be legitimately assessed as being probable.

Tomorrow may bring further reduction in oil, natural gas, and diesel prices, or it may bring a renewed surge in all three. Both outcomes are plausible, and either outcome can be legitimately assessed as being probable.

The ceasefire agreement gives us hope that we will have at least two weeks without war, but hope is all that it really gives us.

There will be “experts” who will assess with confidence what the ceasefire means, and how it will play out for the Persian Gulf and for the world.

What I assess is that all of those “experts” have already proven they have not a clue what they are talking about.

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With results that practically invite memetic comparisons on the theme of “hold my beer”, the Bureau of Labor Statistics blew past the ADP numbers as well as Wall Street projections.

Total nonfarm payroll employment increased by 178,000 in March, and the unemployment rate changed little at 4.3 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, in construction, and in transportation and warehousing. Federal government employment continued to decline.

Wall Street had expected numbers in line with the ADP report. Trading Economics was somewhat more pessimistic.

Instead, the BLS nearly tripled the ADP numbers.

As long-time readers are well aware, I am generally suspicious of numbers which sound too good to be true. Certainly the BLS has given us plenty of reasons to question the integrity of its methods.

Are the numbers too good to be true? Almost certainly. Not only must we consider the inevitable “revisions” that will happen next month and the following month, but we must also contend with diverging data within the March jobs report itself.

At the same time, there are reasons to conclude that there was robust job growth in March, at least as strong as reported by ADP. Even more encouraging, there are signs both the economy and the US labor market may be moving onto an accelerated growth trajectory. There is a distinct probability that President Trump’s economic policies are starting to bear serious fruit.

The March Employment Situation Summary may prove too good to be true, yet it may still prove to be still good.

To add to the confusion, the ongoing war with Iran upends all prognostication and projection. Everything now hinges on the duration of Operation Epic Fury and how long Persian Gulf oil flows will be disrupted. Regardless of whether we consider the March jobs report good or not good enough, it may not matter in the face of the gathering storm of oil price and supply shocks about to break over the global economy.

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Lou Costello Labor Math?

If the March jobs report is too good to be true, how can we establish that within the data itself? What clues are there that the job growth numbers are skewed higher than they should be.

There is an easy test to establish if there is a credibility problem with the BLS jobs numbers: compare the results of the Establishment Survey and the Household Survey from within the Employment Situation Summary report alongside the ADP National Employment Report. As all three survey sets nominally are sampling from the same jobs market, we should expect to see broadly similar trends across all three.

For the past few months, the Household Survey data has diverged dramatically from the Establishment Survey data.

While the Employment Level trend vs the All Employees trend was problematic at best for 2025, over the past three months the Employment Level has broken completely with the Establishment Survey, posting declines as the jobs numbers are going up.

We should not expect the labor surveys to match precisely, but a 0.7pp decrease in the Household Survey’s Employment Level and a 0.2pp increase in the All Employees, Total Private data across the same time frame should not happen. Yet it has over the past three months.

To this we must include consideration of the revisions that have already happened for 2026. Between revised numbers for January and February, the BLS’ job creation statistics already are guilty of overstating job growth by some 11,000 jobs just in the first two months.

Note especially the 41,000 reduction from February’s already horrendous job numbers, moderated in large part by a final and very optimistic revision to January. The total variance thus far is “only” 11,000 in the negative.

Regular downward revisions after the fact have been a recurring theme for the BLS jobs report in recent years, and 2026 is so far proving no exception.

To the question marks raised just within the Employment Situation Summary itself, we must also consider recent PMI data from the Institute for Supply Management, which indicates that March was yet another contraction month for Manufacturing Employment—an outcome the BLS report flatly contradicts.

Lending some credence to the March jobs numbers is the ISM Services Employment PMI metric, which has shown job growth since December.

When looking at PMI data, any number above 50 indicates expansion (or job growth, in this case), and any number below 50 indicates contraction (or job loss).

We do well to take the March jobs report with a very large grain of salt. Not only is there a significant probability of continued downward revisions eliminating a significant portion of the reported 178,000 created jobs, there are contrarian signals both within the jobs report itself and in some of the external data.

The March report sounds too good to be true—and there are good reasons to believe that it is too good to be true.

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Trump Administration Cheerleading, Media Caveats

As has become common anytime the BLS puts out a robust jobs report, the Trump Administration wasted no time in crowing about it and how it shows how well Trump policies are serving the US economy.

The March jobs report blew out expectations with strong construction job growth and a surge in manufacturing job creation as trillions of dollars in investments begin to materialize. America remains on a solid economic trajectory thanks to President Trump’s proven agenda of tax cuts, deregulation, tariffs, and energy dominance.

Alternate media outlets ZeroHedge and Breitbart were largely optimistic in their recitation of the jobs numbers. The Epoch Times was a bit more sober in its assessment, noting the wide spectrum of jobs data that was reported last week.

The flurry of data released this week painted a mixed picture of the employment situation, complicating the labor market outlook.

Demand for labor softened in February, with job openings falling to 6.882 million, from an upwardly revised 7.24 million in the previous month.

Quits—the number of people voluntarily leaving their positions—declined to 2.974 million, from a slightly upwardly adjusted 3.131 million.

These figures indicate “a cooling labor market amid tariff headwinds and lingering inflation uncertainty,” says Gina Bolvin, president of Bolvin Wealth Management Group.

Corporate media was also quick to caveat the numbers, with CNN noting that future reports are sure to be colored by impacts from Operation Epic Fury, and the economic fallout from that war.

If the job numbers hold up over time—and that is still a very big “if”—then the March report will stand as a strong indicator that the jobs recession may be at last coming to an end.

If the job numbers hold up over time, the Trump Administration’s victory lap will be well deserved.

If.

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Sectors Were Mostly Good

One encouraging sign in the jobs data is that most job sectors showed some growth in March.

Manufacturing posted strong job growth for the first time in over a year.

Construction also turned in strong job growth numbers, and Mining (which includes oil and natural gas production) posted a welcome reversal from the declines which marked 2025.

Among service sectors, Healthcare once again was the jobs creation leader, returning to strong job growth after a negative February (a contraction attributed largely to recent healthcare worker strikes). Leisure was another sector with strong job growth, with Trade, Transportation, and Utilities rebounding from February to post modest job gains. Professional Services, although continuing to fade from a January surge, also eked out marginally positive numbers.

Only two sectors printed job losses for March: Finance, which showed either weak growth or job loss through the latter half of 2025, and Information, which is continuing to shed jobs as it did throughout 2025.

The March jobs report showed the sort of balanced job growth that has been lacking in recent jobs reports. While Healthcare’s continued dominance in job creation is cause for concern over the longer term, with most sectors reporting at least some job growth, there is no denying that the US economy needs to see many more job reports at the sector level like March. Nothing lifts all ships like a rising tide which manages to reach all ships.

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Weak Spots Persist

While the jobs numbers from the Establishment Survey are undeniably good, the jobs report contains several areas which remain cause for concern.

The unemployment rate did tick down, both at the official level and at the higher “real” level (which includes those not in the labor force but who want a job now).

While there is indication that both rates are trending down since last fall, they are still significantly above their January 2025 levels, and the longer term trend extending back to April 2023 is still one of increasing joblessness. Incremental improvement is improvement, but not enough to declare the trend of rising joblessness at an end.

We have to be skeptical on joblessness, for while the number of officially unemployed individuals declined in March, those not in the labor force but who want a job now increased.

As the variance between the official and real unemployment rates indicates, there is a large portion of individuals nominally interested in working who are not being counted as part of the official unemployed—their number rose in March, and that’s never a good sign.

Also not a good sign is the number of workers who actually left the labor force in March, which also rose, and for the fourth month in a row.

We cannot ignore these individuals, because when people exit the labor force they are exiting jobs in many cases, but are not being counted as part of the unemployed. As the number of individuals who left the labor force in March—488,000—exceeded the drop in unemployed individuals of 332,000, can we reliably say that jobless actually declined in March?

No. We cannot.

That joblessness is still on the rise is also indicated by the recent downward trend in the Employment Level.

That likelihood is further confirmed by the continued decline of the Employment-Population Ratio.

One of the reasons we can peg the start of the jobs recession to mid-2023 is that the Employment-Population Ratio began to trend down at that time. That trend has continued under President Trump, and so far in 2026 has even accelerated.

This is a trend we do well to monitor closely, because a primary reason the US economy is reputed to have done well during the 1980s and 1990s is that these were the decades when the ratio reached a zenith.

Since then the ratio has been been reduced by recession, most especially during the 2008-2009 recession following the Great Financial Crisis and the 2020 COVID Pandemic Panic. The decline since 2023 is the first time since the ratio began to be recorded after WW2 that it has declined when there was not an “official” declared recession.

When the proportion of working to non-working individuals in the population declines, there is no economic scenario in which that represents economic strength or health.

That alone is a warning sign that tells us the headline jobs numbers in the March report are far from the entire story on employment in the United States.

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What About Wages?

Beyond the red flags within the jobs data itself, wage growth also presents several areas of concern in the March jobs report.

While goods-producing weekly earnings rose and have recovered from the 2022 hyperinflation cycle, private sector service-providing weekly earnings as well as weekly earnings overall declined relative to inflation.

We should add a very large caveat here that the March jobs numbers come out in advance of the March inflation numbers. Goods-producing wages’ success in overcoming the 2022 hyperinflation cycle may prove to be undone by what could prove to be the start of another hyperinflation cycle.

Across the first three months of 2026, wage growth has softened across all sectors, with healthcare weekly earnings declining for the second month in a row.

Robust job growth is what creates upward pressures for wages and earnings. If wages are not responding to that upward pressure, we do well to question how robust the job growth truly is.

Wages are one area where job markets have not been at all equal. Manufacturing wages in particular have recently grown at rates exceeding the rate of inflation, and have been able to overcome the growth in the CPI from the 2022 hyperinflation cycle.

Healthcare wages, however, have not done nearly as well, and still lag consumer price growth by a substantial margin.

Even without the March inflation data, it is clear that in March the situation for healthcare workers relative to inflation got worse and not better.

While the Trump Administration crows about wages having risen 3.9% over the past year, the economic reality is that such an increase, is not nearly enough to recoup from hyperinflation. Until workers are made whole from that economic dislocation, the degree to which they share in Trump’s “Golden Age” remains eternally suspect, if not outright nonexistent.

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Too Good To Be True, But Still Good?

With the red flags, warning signals, and weak spots within the March jobs report, it is almost certain that the headline jobs figure touted across nearly all media outlets as well as by the Trump Administration is too good to be true.

Could the reality of employment in the US for March still be largely good? Yes, it could.

While much will hinge on the magnitude of future revisions, it would take a record level of revision for all the job growth reported in March to be erased. It would take record revisions just to bring the reported job growth down to what ADP reported for the month. The red flags and warning signs tell us there are likely to be downward revisions, but to extrapolate from that a record downward revision would be pure speculation.

Without record downward revisions, we are left with job growth numbers that are still pretty good. If, as some economists suggest, the breakeven job creation rate is around 40,000 jobs per month, without a record downward revision the March job report will show solid job growth. Solid job growth, especially when balanced across most sectors of the economy, is exactly what is needed.

Yet questions must remain, particularly because of the declining employment level and declining employment-population ratio. Regardless of the reasons people are not employed, a healthy economy is when the number people employed in the economy is increasing. Regardless of the reasons people are not employed, a healthy economy is when the number of people working is increasing relative to the number of people who are not. Neither case is what we have presently, and that indicates the economy is not as healthy as many want to believe.

The March jobs report paradoxically is likely to be both too good to be true and still good, although it is impossible to tell at present whether it is good enough.

What Comes Next?

By far the biggest question, however, is the one no one can possibly answer at the moment: what comes next? We cannot say, because the key driver for the foreseeable future is the war with Iran, and the ongoing oil shock from Iran’s closure of the Strait of Hormuz.

Aside from concluding that the next evolutions of that war will be hugely economically impactful, the fog of war precludes easy extrapolations.

What history tells us is that the duration of an oil shock figures heavily in its ultimate economic impact. If the war ends quickly, and with complete reopening of the Strait of Hormuz, the economic impacts will be minimized. If Iran lashes out and does substantial damage to Persian Gulf energy production, and especially if Iran’s Kharg Island oil terminal is damaged or destroyed, the oil shock could carry on for some time, amplifying its economic impacts.

What the red flags and warning signs within the March jobs report tell us is that the United States may not be in the strongest possible economic position to deal with an extended oil shock and resulting price dislocations. As much as the prevailing wisdom from “experts” at the Federal Reserve dismiss the potential of a 1970s-style stagflation crisis, the growing magnitude of oil price and oil supply dislocations means that potential is increasing.

Even Wall Street and corporate media economists are concerned about stagflation potentials as this war drags on.

The question marks all revolve around oil and the refined products we get from oil, all of which are found throughout the global economy. Oil prices are up, as are those for gasoline, diesel, and all the other refined products derived from oil.

Will these costs retard labor growth, as business strive to avoid passing cost increases on to their customers? They could.

Will these costs spike consumer price inflation, with the ultimate effect of suppressing consumer demand? There will be an inflation surge of some magnitude (the March inflation data will be our first look at how great a magnitude). How much demand destruction ensues from that price surge remains a question.

So long as the war continues, so long as the Strait of Hormuz is closed, so long as Persian Gulf oil flows are disrupted, the global economy is heading into some very rough economic times. Stagflation may ensue globally, and recession is a global possibility.

No matter how one views the March Employment Situation Summary, looking ahead reduces almost entirely to the eventual outcome of Operation Epic Fury, how long before the Strait of Hormuz is reopened, and how long before normal pre-war Persian Gulf oil flows can be resumed. Whatever those outcomes prove to be are going to be far more influential on future jobs reports than any of the data presented in the March report.

What comes next for US job markets? Until the war with Iran ends, we do not know.

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ADP repeated that result again for March, with a jobs print that at the headline number was virtually identical to February.

Private sector employment increased by 62,000 jobs in March and pay was up 4.5 percent year-over-year according to the March ADP National Employment Report® produced by ADP Research in collaboration with the Stanford Digital Economy Lab (“Stanford Lab”).

February, readers will recall, ADP put job growth at 63,000.

That figure has since been revised upward, to 66,000.

Dr. Nela Richardson, ADP’s Chief Economist, offered her usual upbeat assessment of the ADP jobs data.

Overall hiring is steady, but job growth continues to favor certain industries, including health care. In March, this solid performance was accompanied by a boost in pay gains for job-changers.

There is no denying that ADP is reporting two months of solid job growth. 66,000 jobs in February and 62,000 jobs in March is indisputably solid job growth.

Whether 60,000+ new jobs each month is enough job growth to meet the needs of the US economy is a much more problematic assertion. The ADP jobs numbers may be good overall, but there is also good evidence to support the contention that 60,000+ jobs is not quite good enough.

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Above Breakeven?

Presumably, 60,000+ jobs created per month is above the country’s current “break even” creation rate—the rate at which job creation matches population growth to keep the unemployment rate stable.

As recently as 2024, the breakeven unemployment rate was considered to be six figures. But now, the number may be far lower. Researchers at two think tanks, the Brookings Institution and the American Enterprise Institute, estimated in a paper last month that it could be as low as 10,000 to 40,000.

Whether ADP’s jobs print is above the breakeven rate is debatable, however. The BLS data indisputably shows that joblessness has been on the rise in this country.

Even in the official unemployment data, joblessness is on the rise. If we consider as well those not in the labor force but who want a job now, not only is that “real” unemployment rate higher than the official rate, it has been rising incrementally faster as well.

If the unemployment rate is rising, we are not creating jobs above the breakeven rate. To be above the breakeven rate we would need to see sustained decreases in the unemployment rate. That is not what is happening.

62,000 jobs is solid job growth, but we almost certainly need more job growth than that each month if we do not want to see the unemployment rate rise any further.

Rising joblessness means the ADP National Employment Report is showing solid not not quite sufficient job growth. We are still shy of where we need job growth to be if we want to see an ending to the jobs recession.

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Two Sectors Did All The Work

Also of concern is that, once again, job growth was focused on only one or two economic sectors, to the detriment of the others.

Even within ADP’s solid jobs report, we still have manufacturing shedding jobs.

Even within ADP’s solid jobs report, we still have Transportation, Trade, and Utilities.

Much as has been the case for quite some time yet, March was yet another month where job growth was concentrated in just one or two sectors.

Healthcare has been a primary driver of job creation for quite some time, printing strong job growth at least as long as manufacturing has been printing job losses.

While the remaining economic sectors (Construction, Finance, Information, Leisure, and Professional Services) all showed some job growth, only Construction showed more than marginal, incremental growth.

Without Healthcare, and to a lesser extent Construction, the ADP report would show negative job growth at the headline level.

One small bright spot which deserves mentioning is the jump in Natural Resources and Mining jobs.

Is the uptick in mining employment part of the network effects from the war with Iran and resultant surge in oil prices? That is a plausible interpretation of the data in context, and while higher energy prices are distinctly undesirable, should they prove a jobs catalyst that would mitigate their negative economic impacts somewhat.

Mining jobs aside, however, what the ADP report is not showing is balanced job growth. It is not showing economically healthy job growth. The ADP report is certainly not showing the sort of job growth we need if President Trump is to realize his Agenda 47 goal of making the US a “manufacturing superpower”.

As good as the numbers might be, those are problems which we should not ignore.

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Wall Street Was Surprised—And Pleased

While the ADP report may or may not be above the breakeven rate for job creation, it was above what Wall Street anticipated for the month.

That Wall Street was pleasantly surprised is self-evident just from watching the Dow Jones Industrial Average, which had a good day for a change.

The euphoria was not complete, however, as Treasury yields continued their rise.

In forex markets, the dollar index had a down day, suggesting that international investors are somewhat less than enthused by the US economy at present.

In most regards, such uneven market results are a perfect reflection of the uneven and unclear messaging conveyed by the March ADP jobs data itself.

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Good But Not Great Results

If the breakeven rate for job creation in this country is around 40,000 jobs each month, then the ADP National Employment Report has for the second month in a row turned in a solid jobs report.

If.

That joblessness and real unemployment rates have been rising for not just months but years at this point is a rebuttal to the premise of a lower breakeven rate. By definition, job growth above a breakeven rate produces a decline in unemployment, not an increase.

Moreover, that healthcare has been the primary engine of job creation in this country is problematic all on its own. Goods producing jobs—i.e., manufacturing and mining—tend to have higher wages. For that reason alone, there is an intrinsic economic preference for goods producing jobs.

While the March report itself was more or less evenly balanced between service jobs and goods producing jobs, it was the first such balanced month in over a year.

Healthy job markets in a healthy economy will produce robust job growth across all sectors and over time. The ADP report does not show the US producing balanced job growth. Job growth in the US has been particularly skewed towards service jobs, and towards healthcare jobs in particular.

Given that service jobs are overall lower-paying jobs than goods producing jobs, the tilt towards service jobs means the economy is cultivating less labor value. In a pure economic sense, the higher wage which tend to accompany goods producing jobs make such jobs more valuable.

As job growth is generally a predicate for wage growth, a tilt towards goods producing jobs would produce greater wage growth sooner. With wages still playing catch-up to the 2022 hyperinflation cycle, an emphasis on goods producing jobs would accelerate the restoration of long-term equilibrium between wages and prices.

The ADP National Employment Report does chart a headline jobs figure that is solid and is arguably above what many believe to be the breakeven rate for employment. That’s the good news.

The ADP National Employment Report does not chart balanced job growth. The report also does not show any indication that Manufacturing’s chronic job loss especially is about to end. That’s the bad news.

As a result, while the jobs recession in this country has not gotten any worse, neither has it gotten any better. For that we need considerably more good news and considerably less bad news than the March ADP report contains.

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Transcript:

Thank you very much.

My fellow Americans, good evening.

Let me begin by congratulating the team at NASA and our brave astronauts on the successful launch of Artemis II. It was quite something. It will be traveling further than any manned rocket has ever flown and will very substantially pass the Moon, go around it, and come back home from a distance that has Never been done before.

It’s amazing. They are on the way, and God bless them. These are brave people. We want to God bless those four unbelievable astronauts.

As we speak this evening, it’s been just one month since the United States military began Operation Epic Fury, targeting the world’s number one state sponsor of terror, Iran. In these past four weeks, our armed forces have delivered swift, decisive, overwhelming victories on the battlefield. Victories like few people have ever seen before.

Tonight, Iran’s Navy is gone. Their air force is in ruins. Their leaders, most of them terrorist regime they led, are now dead. Command and control of the Islamic Revolutionary Guard Corps is being decimated as we speak. Their ability to launch missiles and drones is dramatically curtailed, and their weapons, factories, and rocket launchers are being blown to pieces—very few of them left.

Never in the history of warfare has an enemy suffered such clear and devastating large-scale losses. In a matter of weeks, our enemies are Losing in America, as it has been for five years under my presidency, is winning, and now winning bigger than ever before. Before discussing this current situation, I also want to thank our troops for the masterful job they did in taking the country of Venezuela in a matter of minutes. That it was quick, lethal, violent, and respected by everyone all over the world.

After rebuilding our military during my first term, we have, by far, the strongest military anywhere in the world. And now we’re working along with Venezuela and our, in a true sense, joint venture partners. We’re getting along incredibly well in the production and sale of massive amounts of oil and gas, the second-largest reserves on Earth after the United States of America.

We’re now totally independent of the Middle East, and yet we are there to help. We don’t have to be there. We don’t need their oil. We don’t need anything they have, but we’re there to help our allies.

Tonight, I want to provide an update on the tremendous progress our warriors have made in Iran and discuss why Operation Epic Fury is necessary for the safety of America and the security of the free world.

From the very first day I announced my campaign for President in 2015, I have vowed that I would never allow Iran to have a nuclear weapon. This fanatical regime has been chanting, death to America, death to Israel, for 47 years. Their proxies were behind the murder of 241 Americans in the Marine barracks bombing in Beirut, the slaughter of hundreds of our service members with roadside bombs. They were involved in the attack on the USS Cole, and they carried out the countless other heinous acts, including the blood — just horrible, bloody atrocities of October 7th in Israel — something that most people have never seen anything like it.

This murderous regime also recently killed 45,000 of their own people who were protesting in Iran — 45,000 dead. For these terrorists to have nuclear weapons would be an intolerable threat. The most violent and thuggish regime on Earth would be free to carry out their campaigns of terror, coercion, conquest, and mass murder from behind a nuclear shield.

I will never let that happen, and neither should any of our past Presidents. This situation has been going on for 47 years and should have been handled long before I arrived in office.

I did many things during my two terms in office to stop the quest for nuclear weapons by Iran first. And perhaps most importantly, I killed General Qasem Soleimani in my first term. He was an evil genius, a brilliant person. A horrible human being, however, the father of the roadside bomb.

And he lived just horrible what he did. Iran would have been perhaps in far better, stronger position. He lived. We would have had probably a different conversation tonight. But you know what? We’d still be winning and winning big.

And then, very importantly, I terminated Barack Hussein Obama’s Iran nuclear deal, a disaster. Obama gave them $1.7 billion in cash. Green, green cash. Took it out of banks from Virginia, D.C., and Maryland. All the cash they had. Flew it by airplanes in an attempt to buy their respect and loyalty, but it didn’t work. They laughed at our President and went on with their mission to have a nuclear bomb.

His Iran deal would have led to a colossal arsenal of massive nuclear weapons for Iran, and they would have had them years ago, and they would have used them. It would have been a different world. There would have been no Middle East and no Israel right now, in my opinion, the opinion of a lot of great experts. Had I not terminated that terrible deal, I was so honored to do it. I was so proud to do it.

It was so bad right from the beginning. Essentially, I did what no other president was willing to do. They made mistakes, and I am correcting them. My first preference was always the path of diplomacy, yet the regime continued their relentless quest for nuclear weapons and rejected every attempt at an agreement.

For this reason, in June, I ordered a strike on Iran’s key nuclear facilities in Operation Midnight Hammer. Nobody has ever seen anything like it. Those beautiful B-2 bombers performed magnificently.

We totally obliterated those nuclear sites. The regime then sought to rebuild their nuclear program at a totally different location, making clear they had no intention of abandoning their pursuit of nuclear weapons. They were also rapidly building a vast stockpile of conventional ballistic missiles and would soon have had missiles that could reach the American homeland, Europe, and virtually any other place on Earth.

Iran’s strategy was so obvious. They wanted to produce as many missiles as possible, and they did, with the longest range possible. They had some weapons that nobody believed they had. We just learned that out. We took them out. We took them all out so that no one would really dare stop them. And they’re raised for a nuclear bomb, a nuclear weapon, a nuclear weapon like nobody’s ever seen before.

They were right at the doorstep. For years, everyone has said that Iran cannot have nuclear weapons, but in the end, Those are just words if you’re not willing to take action when the time comes. As I stated in my announcement of Operation Epic Fury, our objectives are very simple and clear.

We are systematically dismantling the regime’s ability to threaten America or project power outside of their borders. That means eliminating Iran’s navy, which is now absolutely destroyed, hurting their Air Force and their missile program at levels never seen before, and annihilating their defense industrial base. We’ve done all of it.

Their Navy is gone.

Their Air Force is gone.

Their missiles are just about used up or beaten.

Taken together, these actions will cripple Iran military, crush their ability to support terrorist proxies, and deny them the ability to build a nuclear bomb. Our armed forces have been extraordinary. In anything like it, militarily, everyone is talking about it.

And tonight, I’m pleased to say that these core strategic objectives are nearing completion.

As we celebrate this progress, we think especially of the 13 American warriors who have laid down their lives in this fight to prevent our children from ever having to face a nuclear Iran. Twice this past month, I have traveled to Dover Air Force Base. And it’s been something. I wanted to be with those heroes as they returned to American soil. And I was with them and their families, their parents, their wives, their husbands.

We salute them, and now we must honor them by completing the mission for which they gave their lives.

And every single one of the people, their loved ones said, please, sir, please finish the job. Every one of them. And we are going to finish the job, and we’re going to finish it very fast. We’re getting very close.

I want to thank our allies in the Middle East, Israel, Saudi Arabia, Qatar, the UAE, Kuwait, and Bahrain. They’ve been great, and we will not let them get hurt or fail in any way, shape, or form. Many Americans have been concerned to see the recent rise in gasoline prices here at home. This short-term increase has been entirely the result of the Iranian regime launching deranged terror attacks against commercial oil tankers in neighboring countries that have nothing to do with the conflict. This is yet more proof that Iran can never be trusted with nuclear weapons. They will use them, and they will use them quickly.

It would lead to decades of extortion, economic pain, and instability worse than we can ever imagine. The United States has never been better prepared economically to confront this threat. You all know that we built the strongest economy in history.

We’re going through it right now, the strongest in history. In one year, we’ve taken a dead and crippled country. I hate to say that, but we were a dead and crippled country after the last administration, and made it the hottest country anywhere in the world by far, with no inflation, record-setting investments coming into the United States, over $18 trillion, and the highest stock market ever, with 53 all-time record highs in just one year. It all positioned us to get rid of a cancer that has long simmered. It’s known as the nuclear Iran.

And they didn’t know what was coming.

They’ve never imagined it.

Remember, because of our Drill Baby Drill program, America has plenty of gas.

We have so much gas.

Under my leadership, we are number one producer of oil and gas on the planet without even discussing the millions of barrels that we’re getting from Venezuela.

Because of the Trump administration’s policies, we produce more oil and gas than Saudi Arabia and Russia combined. Think of that. Saudi Arabia and Russia combined.

And that number will soon be substantially higher than that. There’s no country like us anywhere in the world, and we’re in great shape for the future. The United States imports almost no oil through the Hormuz Strait, and won’t be taking any in the future. We don’t need it. We haven’t needed it, and we don’t need it. We’ve beaten and completely decimated Iran. They are decimated, both militarily and economically and every other way. And the countries of the world that do receive oil through the Hormuz Strait must take care of that passage.

They must cherish it. They must grab it and cherish it.

They can do it easily. We will be helpful, but they should take the lead in protecting the oil that they so desperately depend on.

So to those countries that can’t get fuel, many of which refuse to get involved in the decapitation of Iran, we had to do it ourselves. I have a suggestion.

Number one, buy oil from the United States of America.

We have plenty. We have so much. And number two, build up some delayed courage. Should have done it before. Should have done it with us, as we asked. Go to the Strait and just take it. Protect it. Use it for yourselves. Iran has been essentially decimated. The hard part is done, so it should be easy. And in any event, when this conflict is over, the strait will open up naturally. It’ll just open up naturally. They’re going to want to be able to sell oil because that’s all they have to try and rebuild. Resumed the flowing, and the gas prices will rapidly come back down.

Stock prices will rapidly go back up.

They haven’t come down very much, frankly. They came down a little bit, but they’ve had some very good days over the last couple of days. We’ve done, actually, much better than I thought. But we had to take that little journey to Iran to get rid of this horrible threat. With our historic tax cuts, where people are just now talking about receiving larger refunds than they ever thought possible, They are getting so much more money than they thought. That’s from the great, big, beautiful bill. Our economy is strong and improving by the day, and it will soon be roaring back like never before. It will top the levels that it was a month ago.

I’ve made clear from the beginning of Operation Epic Fury that we will continue until our objectives are fully achieved. Thanks to the progress we’ve made, I can say tonight that we are on track to complete all of America’s military objectives shortly, very shortly. We are going to hit them extremely hard over the next two to three weeks. We’re going to bring them back to the Stone Ages, where they belong.

In the meantime, discussions are ongoing. Regime change was not our goal. We never said regime change, but regime change has occurred because of all of their original leaders’ death. They’re all dead. The new group is less radical and much more reasonable. Yet, if during this period of time no deal is made, we have our eyes on key targets. If there is no deal, we are going to hit each and every one of their electric generating plants very hard and probably simultaneously. We have not hit their oil, even though that’s the easiest target of all, because it would not give them even a small chance of survival or rebuilding. But we could hit it, and it would be gone, and there’s not a thing they could do about it.

They have no anti-aircraft equipment. Their radar is 100 percent annihilated.

We are unstoppable as a military force. The nuclear sites that we obliterated with the B-2 bombers have been hit so hard that it would take months to get near the nuclear dust and we have it under intense satellite surveillance and control. If we see them make a move, even a move for it, we’ll hit them with missiles very hard again. We have all the cards. They have none.

It’s very important that we keep this conflict in perspective. American involvement in World War I lasted one year, seven months, and five days. World War II lasted for three years, eight months, and 25 days. The Korean War lasted for three years, one month, and two days. The Vietnam War lasted for 19 years, five months, and 29 days. Iraq went on for eight years, eight months, and 28 days.

We are in this military operation, so powerful, so brilliant, against one of the most powerful countries for 32 days.

And the country has been eviscerated and essentially is really no longer a threat. They were the bully of the Middle East, but they’re the bully no longer. This is a true investment in your children and your grandchildren’s future. The whole world is watching, and they can’t leave the power, strength, and brilliance. They just can’t believe what they’re seeing. They leave it to your imagination, but they can’t believe what they’re seeing, the brilliance of the United States military.

Tonight, every American can look forward to a day when we are finally free from the wickedness of Iranian aggression and the specter of nuclear blackmail. Because of the actions we have taken, we are on the cusp of ending Iran’s sinister threat to America and the world. And I’ll tell you, the world is watching. And when we do, when it’s all over, the United States will be safer, stronger, more prosperous, and greater than it has ever been before.

May God bless the men and women of the United States Armed Forces, and may God bless the United States of America.

Thank you very much, and good night.

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The JOLTS data also suggests that, contrary to what the ADP report showed for January, the jobs recession may be about to end, although any extrapolation along those lines must wait until we have the February data to compare to the February Employment Situation Summary especially. If the February JOLTS report mirrors that jobs data, then the jobs recession is in fact getting even worse.

Now the February report is out, and we have our answer. February’s JOLTS report shows the job recession getting worse, although the Bureau of Labor Statistics does its usual job of obfuscating that reality.

The number of job openings was little changed at 6.9 million in February, the U.S. Bureau of Labor Statistics reported today. Over the month, hires decreased to 4.8 million, and total separations changed little at 5.0 million. Within separations, quits (3.0 million) were little changed while layoffs and discharges (1.7 million) were unchanged.

What the report glosses over: job openings fell, and separations fell by less than hires.

February’s JOLTS data does an excellent job of confirming that February’s Employment Situation Summary was every bit as “fugly” as it appeared.

The jobs recession is in fact getting even worse.

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Everything Down

The JOLTS report is, unlike many of the BLS data sets, is a marvel of simplicity. It revolves around the reported numbers of job openings, hires, and separations each month.

In February, all three base metrics dropped.

The drop in hiring was particularly dramatic, outpacing separations significantly.

With hiring dipping below the level of separations, net hiring went negative (again).

Even when we focus on the private sector, net hiring was still negative for the month.

The decline was merely the latest downward shift in a trend of shrinking net hiring the dates back to 2021.

The United States has been hiring fewer and fewer people each month—which means creating fewer and fewer actual jobs—since before the 2022 hyperinflation cycle.

The net hiring data alone reduces recent corporate media claims about labor market “stability” to utter absurdity. Even corporate media outlets appeared to realize this, jettisoning the “stability” narrative from last week’s unemployment claims data for freshly minted concerns about the lack of labor market “churn”.

Listless hiring and labor hoarding mean the all-important “churn” needed for a healthy labor market and healthy economy has ground to a near-halt.

However, that labor market “churn” was decreasing has been self evident in the JOLTS data since 2021.

The steady decline in “quits”—voluntary separations—relative to layoffs and terminations has been another indication that labor markets were getting progressively softer, less healthy, and more toxic.

Media propaganda aside, Wall Street has known this, but still was caught off guard with the actual job openings figure coming in well below the Wall Street consensus forecast.

Simply put, February was a month where nearly everything was down on the JOLTS.

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No Relief In Any Sector

Nor were there any bright spots to be found in the sector level data.

Manufacturing continued hemorrhaging jobs.

Construction, which had shown some hiring strength in recent months, reversed into job loss.

Among service positions, Trade, Transportation and Utilities led the downturn, with Professional and Business Services as well as Leisure and Hospitality also reversing into declines.

Even normally strong Healthcare abruptly weakened in February, barely showing any job growth at all.

The one sector where employment grew significantly is the one sector many wish would never show any job growth: Government.

February was a month when we got none of the job growth we wanted and only some of the job growth we didn’t want. That is not a good outcome for any jobs report.

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Confirms February Employment Situation Summary

Last month, I pointed out the February JOLTS report would present in one of two ways: the JOLTS data could track the ADP report, or it could track the BLS jobs report. For February, it again largely tracked the BLS jobs report.

While the JOLTS report tends moderate some of the volatility within the jobs data, the shifts up and down broadly align with the Employment Situation Summary.

To a degree, we should expect this: both surveys are measurements of what should be the same underlying data—i.e, employees. Still, confirmation of the Employment Situation Summary data is not at all comforting, given the decline in overall employment that report has printed since the start of 2025.

As if to add insult to injury, corporate media also took pains to point out that the hiring rate on the February JOLTS was the worst since the COVID Pandemic Panic—and of course it was all President Trump’s fault (even though most of the decline from peak hiring in 2022 happened under Joe Biden).

Economist Heather Long of the Navy Federal Credit Union, came close to using the term I have been using for over a year—“jobs recession”—describing the lack of job creation as a “hiring recession.”

“This is a hiring recession,” Long wrote in a social media post. “And Americans are feeling it. There were notable hiring pullbacks in February in hospitality and construction. Bottom line: The job market was already frozen before the war in Iran began. It’s worrying that a ‘no hire, no fire’ situation could turn into a ‘no hire, start to fire’ job market quickly if there isn’t a resolution soon.”

The term “jobs recession” has gained some traction among the presumed “experts”, as Moody’s Chief Economist Mark Zandi embraced the term last December. Whether labeled “jobs recession” or “hiring recession”, even the mainstream economists who have ignored the softening jobs data for the past few years are coming around to the reality that data is describing toxic and increasingly dysfunctional jobs markets increasingly vulnerable to employment shocks and dislocations.

Without hiring to compensate, if there is any uptick in layoffs and terminations, the impact on labor markets will be extremely negative. The labor market “churn” corporate media correctly laments is missing provides a valuable buffer which mitigates much of the impact of any increases in forced labor separations.

In every aspect, the February JOLTS data confirmed the worst parts of the February BLS jobs report. The JOLTS data confirmed what many people already know just from their own experiences: job markets in the United States are high on suckage and low on actual jobs.

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Prelude To Stagflation?

One thesis for which I get some pushback is my estimation of the potential for a stagflationary episode in the US economy.

I am convinced there is a significant stagflation risk that is becoming more pronounced with major global events such as the war with Iran producing major economic dislocations worldwide. However, with “official” unemployment still fairly low, there is a tendency among mainstream “experts” and those who blindly accept their pronouncements to simply follow Fed Chair Jay Powell’s lead and ignore those stagflation risks for the US. Official employment is low, inflation is as of last month still low (that is about to change), so why worry?

That perspective presumes that unemployment is really as low as the “official” metric claims. As I have argued many times, the real unemployment rate is likely quite a bit higher, which we can see even if we add back just those not in the labor force but who want a job now.

Even with the decline in separations on the JOLTS report, the long term trend for joblessness in this country is rising.

Rising joblessness should be a major red flag, particularly at this juncture. With soaring oil prices, rising and elevated joblessness is a deflation indicator that sets the stage for stagflation. The missing ingredient is an inflationary price shock—which we may already have received as a result of the war with Iran.

Soft labor markets and some very nasty oil price shocks are what gave us stagflation in the 1970s.

We have soft labor markets. We are about to have a very nasty oil price shock.

Will we have a repeat of 1970s stagflation?

Already, if we start with “real” unemployment and add in existing year on year inflation, we get a “misery index” value that is at the same level as it was using the official unemployment rate back in 1973.

We know that there will be a burst of energy price inflation for March and most likely for April as well. Given the magnitude of recent spikes in energy prices, that much is inevitable. Nor is there any assurance the price spikes will be confined to energy, as energy consumption permeates the whole of every economy worldwide.

That burst of inflation means the March misery index values will be higher than they are now—not “may be”, but “will be”. That outcome is all but guaranteed. April will not be any better and potentially will be even worse.

If the March BLS jobs numbers show the US economy shedding jobs across the board, pushing real unemployment higher, the misery index will rise on that as well.

While we are not right this moment in a stagflationary cycle, we do not need very large pulses of either inflation or unemployment to move us into data ranges very close to the levels of the 1970s, when “stagflation” became a word. We are considerably closer to that level of economic dysfunction than many of the economic “experts” on Wall Street or in the Washington bureaucracy are willing to admit.

We have soft labor markets. We are about to have a very nasty oil price shock.

The fundamental predicates are likely to be met with the March data.

If oil prices quickly return to their pre-war levels, the stagflation risk in the economy will quickly fade as well.

If oil prices do not quickly return to their pre-war levels, the stagflation risk in the economy morphs into a stagflation certainty.

The February Employment Situation Summary showed us yet again that the jobs markets in this country are deteriorating and declining.

The February JOLTS data shows us the Employment Situation Summary data is not exaggerating just how tight and toxic US job markets are.

Add to that a large burst of consumer price inflation and the outcome starts to look very much like the stagflation we saw in the 1970s.

We are already there. We are at the same misery index levels that marked the start of stagflation in the 1970s. The question now is not whether we will reach that threshold, but how far past it will we go, and for how long?

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Late last week, Iraq announced it was declaring “force majeure” for all oilfields developed and operated by foreign oil interests. That same day President Trump issued an ultimatum to the Khamenei regime: surrender now or Iran’s power plants woud be destroyed. Iran responded by threatening oil and natural gas production across the Persian Gulf region.

Oil, which had been stabilizing around $100/bbl for Brent Crude, soared yet again. Stock markets in turn dropped dramatically.

Yesterday morning came the news that President Trump and the Iranians were “talking”, leading Trump to postpone any deliberate targeting of the Iranian power grid.

Such has been the chaos of Operation Epic Fury over the past few days, whipsawing from the fallout of war, to major escalation, to possibly a chance for peace.

Do we know how this war will end? No, we do not. We cannot extrapolate with any certainty along any lines to project a final outcome. How this war ends is not merely unknown, it is completely unknowable.

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Arab Oil Production At Risk

There was little doubt that the global economic fallout from this war was intensifying when the Iraqi Oil Ministry, in a letter dated March 17 and made public March 21, declared “force majeure” on all foreign-operated oil fields, ordering a complete halt to all production.

Iraq’s Oil Ministry sent a letter dated March 17, seen by Reuters, stating that navigation through the Strait of Hormuz has been severely affected by “unprecedented military activity,” causing storage capacity to reach its limits.

“The international partners were unable to nominate tankers to lift crude, preventing exports despite the state oil company SOMO being ready to load shipments,” the letter said.

“Based on the situation, the ministry ordered a full shutdown of production at affected concession areas, with no compensation arising from the measure under contract terms,” the letter noted.

Iraq’s oil output was promptly slashed by 70%, to 900,000 barrels per day.

Iraq’s declaration underscores one of the logistical realities of oil production: oil wells depend on being able move the oil to someplace else. When oil shipments are disrupted, not only does oil not get to its intended destination, but the backlog can quickly extend back to the wellhead, as oil storage capacity is filled. When there is no more spare oil storage, oil producers have no choice but to shutter at least a portion of production capacity.

While Iraq’s force majeure declaration was the most dramatic, it was not the first disruption of oil production attributed to the war. Earlier last week it was reported that Saudi Arabia had reduced its oil output by 20% because of the war.

Middle East Gulf oil producers have had to shut vast volumes of production ‌due to ⁠the blocking ⁠of the Strait of Hormuz, a narrow waterway between Iran and Oman, since the U.S. and Israel began airstrikes on Iran on February 28. Iran has said the world should prepare for oil prices at $200 a barrel.

It is one thing for oil tankers to be delayed on either side of the Strait of Hormuz. Such disruptions are, by their nature, temporary. All that is needed is a solution which can move tankers through the Strait.

It is quite another thing, however, when storage capacity at the oil terminals around the Persian Gulf is exhausted, and oil wells are obliged to stop pumping oil

While stopping the pumping process is fairly simple, restarting a stopped well is not nearly so straightforward. Once an oil well is shut down, a number of hurdles to restarting production tend to emerge, and will get worse the longer the well is shut in.

Some of those hurdles include precipitates such as paraffin, which can block the well itself. If the well is not filled with protective fluids, ground water and other external fluids can corrode and damage the well. There is even a risk of microbial contamination, necessitating particular care during well restart.

Iraq declaring “force majeure” over 70% of its oil production was tantamount to removing for the foreseeable future over 2 million barrels of oil output per day from global supply.

As I noted at the time of Iraq’s declaration, Iran’s asserting control over the Strait of Hormuz threatens Persian Gulf oil production in at least the near term:

An extended blockade of the Strait of Hormuz does not merely temporarily delay oil shipments. It threatens a long-term reduction in oil production capacity in the Persian Gulf, a reduction which will not be immediately eliminated once the blockade is even partially ended.

This is what Iran has done.

The near-term implications of Iran’s strategic decision regarding the Strait are nothing short of apocalyptic for the Persian Gulf. If Iran continues to retain control over the international waterway, Persian Gulf oil flows could stop altogether.

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“48 Hours”

President Trump, faced with Iran continuing to threaten not only oil shipments from the Persian Gulf but oil production itself, responded in typical Trumpian fashion, escalating matters by issuing an ultimatum to Iran, posted via Truth Social: reopen the Strait of Hormuz in 48 hours or the US will begin bombing Iran’s power grid.

Iran responded in almost laconic fashion, with the Mehr news agency releasing a statement that said simply: “say good-bye to electricity.”

The outlet wrote, “Say goodbye to electricity,” and said that “with the smallest attack” on the Islamic Republic’s power infrastructure, “the entire region will fall into darkness.”

The statement was accompanied by a map showing the locations of major Arab power plants, highlighting how they were all within range of Iranian drones and missiles.

After Iraq’s force majeure announcement, and the earlier Saudi shuttering of its oil production, the apocalypse being threatened collectively by Iran and the US was more stress than oil markets were willing to tolerate. Brent Crude, which the week before had flirted with $120/bbl, surged towards that threshold again.

The timing of events was especially ironic, given that Federal Reserve Chairman Jay Powell had on Wednesday foolishly scoffed at the prospect that we might see a return of “stagflation”.

Even before the events of last weekend, it was clear that the war’s risks to the global economy were not insignificant.

Soft labor markets and some very nasty oil price shocks are what gave us stagflation in the 1970s.

We have soft labor markets. We are about to have a very nasty oil price shock.

Will we have a repeat of 1970s stagflation?

The surge in gas prices which has already occurred alone make for a severe price shock, potentially enough to usher in a stagflationary episode.

Wall Street looked at the potential energy crisis looming as a result of US and Iranian brinksmanship and accelerated its downward trend.

While it continues to be true that, as I have said previously, the US and Israel have for all intents and purposes won the war militarily, and have destroyed nearly every military target of significance in Iran, having an oil price shock of ever increasing magnitude bearing down on the global economy is not an outcome anyone would be able to sell as winning in a geopolitical sense.

Was President Trump on the verge of having won every battle with the Iranians—if the non-stop bombing can indeed be called a “battle”—only to lose the war itself?

Over the weekend, that was far from a radical or fringe interpretation of events.

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“We’re Talking”

Yesterday morning, President Trump managed to flip the script yet again, posting on Truth Social that he had extended his ultimatum by five days, as a result of “productive” talks with Iran over ending the war.

And just like that, the price of oil dropped like a stone.

The optimism was infectious, as equities surged.

Apparently, there is no good news quite so pleasing to hear as an announcement that the Apocalypse is being postponed.

Never one to be satisfied with a linear narrative and an obvious geopolitical plus, Iran has reacted to Trump’s announcement by calling it a fabrication, denying that any talks were taking place.

Foreign Ministry spokesman Esmaeil Baghaei insisted Iran’s positions had not changed regarding the Strait of Hormuz.

In comments shared by the state news agency IRNA, Baghaei said: “Messages have been received from some friendly countries regarding the US’s request for negotiations to end the war.”

Iran responded by giving warnings about “the dire consequences of any attack on Iran’s vital infrastructure”, Baghaei said.

Iranian parliament Speaker Mohammad Bagher Ghalibaf, believed to be the person engaging with US Special Envoy Steve Witkoff, was similarly emphatic:

There is, of course, no way to independently verify the claims on either side, especially regarding which side made the first diplomatic overture. Both sides would clearly benefit from a peaceful resolution of this war—or at least a ceasefire—and yet both sides have powerful political reasons for not being perceived to be the one who backed down before the other.

What we know is that President Trump has issued a five-day delay, presumably in order to give peace a chance.

What we know is that Wall Street was quite relieved to hear that the Trump Administration were talking.

What we know is that Wall Street investors prefer a narrative of President Trump looking to “do a deal” with Iran over one of Donald Trump threatening to eradicate Iran’s vital infrastructures. For the moment, at least, President Trump has given them that narrative.

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Check Your Assumptions

Wall Street is frequently a useful bellwether for gauging how various geopolitical events are being received. Movements in oil prices tell us how investors assess the risks of oil supply dislocations as a result of the war. Movements in equities are a useful proxy for gauging investor sentiment—and, by extension, public sentiment—surrounding the war with Iran (or any other major event).

Wall Street responses are by no means a measure of information accuracy, but they do provide context for the media narratives by which the details surrounding the war are presented.

Ironically, the one asset class which has not performed well during the entire war is one we would expect to be doing extremely well: gold and precious metals.

Gold has long been considered as a hedge against inflation and geopolitical risk. Especially when war breaks out, we typically expect the price of gold to rise, as it did during the opening stretch of Russia’s invasion of Ukraine.

However, after a fleeting “flight-to-safety” moment at the very beginning, as Wall Street sentiment on the war has soured, gold as well as silver prices have dropped.

What has been the preferred “flight-to-safety” investment as the war with Iran has unfolded? Suprisingly, it has been dollars. On forex markets the Dollar Index has been climbing steadily since the start of Operation Epic Fury.

It is worth noting that forex investors responded to Trump announcing “productive” talks with Iran yesterday morning by dumping dollars. Peace prospects apparently do not contribute to the strength of the dollar.

These counterintuitive asset movements in response to evolutions in the war lend a vital perspective to assessing events as they unfold, as they are a constant reminder to check assumptions and question narratives. We do not expect gold to lose value during a geopolitical crisis, and during a war especially. We do not expect the dollar to become an attractive forex play when the United States decides to start a war. Yet these things have happened.

Whatever cherished assumptions and narratives people think are true about the Middle East as well as Donald Trump, people do well to check those underlying assumptions and question those prevailing narratives.

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Nobody Knows

The challenge of chaos and confusion is that they make any sort of rational extrapolation of current events impossible. While we can assess probable outcomes if certain shifts are maintained, we can have no confidence that any shift will be maintained. Events just of the past few days have demonstrated just how fluid things continue to be within this war.

Will there be a peace deal struck between the Trump Administration and the Khamenei regime in Tehran? Nobody knows.

Are there actual talks taking place between members of the Khamenei regime and the Trump Administration? Nobody knows—certainly nobody outside of the Administration or the regime.

Will this war end in a geopolitical victory for Donald Trump, a defeat, or a stalemate? Nobody knows. There are simply too many unknowns (both known and unknown) to allow us to assess with any degree of confidence how they will get resolved. We do know that partisan assessments have already decided that President Trump has already either won or lost this war (depending on the political orientation of the one doing the assessing), but that sort of goal-seeking exercise sheds no real light on how much geopolitical influence Donald Trump and the United States might have gained or lost as a result of this war.

Will Iran’s moves compel the Arab states to move closer to the US and Israel, or to Iran? Nobody knows. Much hinges on whether the Arab states in the Persian Gulf region determine the dangers threatening their countries are more the handiwork of President Trump or of the Iranian regime.

If President Trump emerges from this war with a clear geopolitical win, it is reasonable to assess that perceptions of American strength and dominance worldwide will increase. Yet what if the outcome is not a clear geopolitical win? Will American strength be seen as diminished?

If the mullahs in Tehran survive this war and remain in control of Iran, is that enough for them to claim victory? It certainly seems likely they will at least make the claim, although the credibility of that claim is likely to be at least problematic.

If the mullahs in Tehran remain in control, does that mean the war has ended in a draw? Certainly that is a tempting conclusion to reach.

Will there be a popular uprising in Iran that topples the Khamenei regime? President Trump called for one in his very first address after the start of Operation Epic Fury, and there is little doubt that he would like to see the Iranian people dismantle the regime. However, as of this writing, no insurgency has erupted within Iran.

Could the bombings end, the kinetic operations cease, and there be a space of some months before a popular insurgency displaces the Khamenei regime? We cannot know if that would happen, although is certainly one possible scenario. If during the summer months the Khamenei regime were overthrown, President Trump would arguably deserve at least some credit for crafting an opportunity for the Iranian people to rise up.

Yet we also cannot dismiss the possibility that the mullahs remain in charge, and that there is no insurgency. We cannot dismiss the possibility that such an outcome may diminish Donald Trump’s overall political capital, both domestically and globally.

Virtually every conceivable scenario for what happens next in this war remains very much on the table. Virtually every conceivable scenario could be what happens next in this war.

Which of those scenarios will we see unfold? Nobody knows.

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In a very turbulent news cycle, however, it is wisest to avoid indulging in excessive criticism of Powell’s penchant for pushing down equities. As the war with Iran expands, and as oil prices move ever higher, it would have been a remarkable feat if Powell had said anything which moved equities higher.

While there are many criticisms of Powell’s remarks to be made, I want to focus first on Powell’s dismissal of stagflation risks lurking in the US economy. By conveniently redefining the term around the 1970s oil shocks, he overlooks both the origin of the term and the significance it holds as an assessment of today’s economic conditions.

The term “stagflation” has a broader history than the narrow version Powell wants people to have. That history is a useful context for appreciating the stagflation risks we are facing today—and we are facing stagflation risks, even if Powell lacks the courage to say it out loud.

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We begin with what Powell actually said, in response to a question from Maria Loisa Capurro with Bloomberg News:

Maria Loisa Capurro: If there have been any discussions about the risk of stagflation scenario.

Jerome Powell: As I mentioned, there is tension between the two goals, right? The upward risk for inflation and downward risk for employment. And that puts us in a different situation. You know, when we use the term stagflation, I always have to point out that that was a 1970s term at a time when unemployment was in double figures and inflation was really high, and the misery index was super high. Add them together, you get the misery index. And that’s not the case right now.

We actually have unemployment really close to longer run normal, and we have inflation that’s, you know, one percentage point above that. So calling that stagflation, it’s not, you know, I would reserve the term stagflation for stagflation, you know, a much more serious set of circumstances.

That is not the situation we’re in. What we have is some tension between the goals, and we’re trying to manage our way through it. It’s a very difficult situation, but it’s nothing like what they faced in the 1970s, and I reserve stagflation for that, the word for that period.

Maybe that’s just me.

“Stagflation”, in Powell’s mind, is when there is very high inflation and very high unemployment, producing a very high “misery index” figure.

Since the United States economy is arguably not facing super high inflation but for the inevitable price shocks heading our way from Operation Epic Fury, and since unemployment is theoretically not very high at all, stagflation is not a realistic scenario, according to Jay Powell.

Of course, Maria Capurro’s question was not about current conditions but about a future scenario. Powell appears to be saying that 1970s-style economic conditions are absolutely not in the cards, without actually saying much of anything. In that regard, it is a typical Jay Powell non-answer, where he throws out a bunch of words and hopes no one notices his evasiveness.

While markets were underwater anyway prior to Powell’s press conference, evasions such as the one he gave on stagflation did not help the markets at all, resulting in stocks declining further faster after he started speaking.

The biggest problem with his stagflation evasions comes when he mis-states the history of the term, and thus its actual meaning.

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It’s a neat revisionist trick, confining stagflation to the 1970s, but the term did not arise during the 1970s, nor was it confined merely to descriptions of the brutal US economic conditions at that time.

The term “stagflation” was first attributed to Conservative Member of the British Parliament Iain Macleod, in a November 17, 1965 House of Commons Debate1.

I agree with the hon. Gentleman. It was. We now have the biggest gap between productivity and earnings of any time in modern economic history. Certainly history was being made. The index figure of industrial production at 133 for January—revised on the latest figures to, I think, 134; and for December it is down to 131—is certainly history. I can find no period—and I have checked this all the way back, with the possible exception of 1952—when in 13 years there was a year when the gap was so wide between what we should be doing and we were in fact doing.

We now have the worst of both worlds —not just inflation on the one side or stagnation on the other, but both of them together. We have a sort of “stagflation” situation and history in modern terms is indeed being made. There is another point behind the figures. As I say, production has fallen by 1 per cent. or ½per cent. while incomes have gone up, perhaps, by 8 per cent. This can result only in two things happening in the months ahead; either a considerable increase in our import bill to meet the increased consumer expenditure or a very real rise in our prices.

Macleod’s concern at the time was declining productivity in the UK at a time when incomes—and, by extension, prices—were going up.

Note that the rates he was describing—0.5-1pp drop in productivity against an 8pp increase in incomes—are not at the levels that would invite close comparisons to the 1970s in the United States. As Powell correctly noted in his non-answer to Maria Capurro, in the 1970s inflation was high while unemployment was also high.

However, the distinction between 1960s Great Britain and 1970s United States is fundamentally one of degree. Iain Macleod was describing an economic situation that was starting to get bad, whereas our looking back on the 1970s typically lands us in the late 1970s when the economic situation had already gone bad.

Just as we can have extreme or mild inflation, just as we can have extreme or mild deflation, we can have extreme or mild stagflation. The US economy in the 1970s is an example of extreme stagflation. 1960s Great Britain is an example of more moderate stagflation (which, we should remember, would get considerably worse in the years following the 1965 debate).

Powell might want to confine his use of the term “stagflation” to only the extreme scenarios, but history does not lend itself to such a narrow understanding of the term. Neither does a closer scrutiny of the forces underpinning the phenomenon.

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If we go back to Macleod’s original formulation, an essential ingredient for stagflation is obviously rising inflation. We must take care to note, however, that direction and magnitude are two different dimensions of measurement. Whether inflation rises a little or a lot, what matters for stagflation is that it rises.

At first glance, we might dismiss inflation concerns. It is readily apparent that, relative to the 2022 hyperinflation cycle, we are not facing a serious rise in consumer price inflation at the moment.

However, if we zero in on the last two years, we have to note that year on year inflation did start to trend up beginning in September of 2024.

The increase is hardly a dramatic rise, and the volatility in the data generates enough statistical noise to obscure any readily discernible trends in the month on month inflation metrics.

Not only have we not seen inflation rise much, but we have also seen headline CPI clearly decline since last summer. As I wrote about February’s CPI print, we are not seeing inflation getting appreciably hotter at the moment.

Corporate media pearl-clutching notwithstanding, once again the inflation report was notable for the absence of…well…inflation.

Why I am I now saying that inflation has risen? Because it has, albeit by an amount that is not necessarily significant and over a longer time frame than we usually consider when scrutinizing the monthly inflation data. More to the point, I am noting that, from a perspective of understanding stagflation, we have one of the predicates already established: rising inflation. We do not need to go farther than this and we should not go farther than this.

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Looking back at Macleod’s original stagflation formulation, the other predicate was falling productivity.

When we look at labor productivity growth in 2024 and 2025, we see that productivity slowed significantly in 2024.

Labor productivity has staged a recovery in 2025, but there is a clear softening of labor productivity growth over the past two years.

Manufacturing productivity tells an even worse tale for 2024, with outright productivity declines, before mounting a recovery in in 2025.

Even with recovery, nondurable goods productivity is still softer at the end of 2025 than at the beginning of 2024.

For 2024 at least, we can say that the second of Macleod’s predicates for stagflation were met.

However, labor productivity is only one dimension to consider. In the 1970s, the dimension that captured everyone’s attention was the unemployment metric. If we expand our assessment of the labor aspect of stagflation to include joblessness, a much stronger case for seeing the second of Macleod's predicates for stagflation emerges in the current data.

Here Powell hides behind a longstanding statistical sleight of hand regarding unemployment—not counting those technically not in the labor force as unemployed—to argue that unemployment is fairly low. On the surface, the unemployment rate now is certainly lower than it was in the 1970s and 1980s, when it was routinely above five percent and even flirted with double digits.

Nevertheless, while low relative to the rate as measured in the 1970s, the unemployment rate has been rising steadily since mid-2023.

Moreover, if we address the BLS’ statistical manipulations regarding labor force participation by adding in the number of people technically not in the labor force but who want a job now, we find that current “real” unemployment rates are on par with what we saw during the 1970s.

Adding in people out of the labor force but who want a job now puts the February “real” unemployment rate at 7.6%—indisputably 1970s level unemployment.

If we look more closely at those persons not in the labor force in general, we find their number has been increasing. Looking at those not in the labor force between the ages of 16 and 64, their number began increasing around July of 2024.

These are workers still in prime employment years, and they are apparently leaving the labor force altogether. A portion of these arguably should be counted as “unemployed” as they want a job now, but even without that consideration a growing number of “working age” people in this country are exiting the labor force.

While the rising inflation aspect of the stagflation formula risks being needlessly alarmist, the falling productivity/rising joblessness aspect is far more definitively met with the current data. In the absolute strictest of terms, both criteria are met within contemporary data sets. The crucial variance between the US today and both the US in the 1970s and the UK in the 1960s is the magnitude of the forces at work.

The only aspect of the present data which allows Powell to claim the current economic climate is not “stagflation” is the severity of the both the inflation and the joblessness. As we are not seeing “extreme stagflation”, Powell would say we are not seeing stagflation at all. That is both disingenuous and more than a little dishonest.

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Conceptually, stagflation is when rising prices collide with low economic growth or even economic contraction2.

Stagflation combines stagnant economic growth, high unemployment, and persistent inflation.

Jay Powell himself last year articulated that the potential precursors to stagflation are lurking in the US economy3.

We have stressed that it will be very difficult to assess the likely economic effects of higher tariffs until there is greater certainty about the details, such as what will be tariffed, at what level and for what duration, and the extent of retaliation from our trading partners. While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected. The same is likely to be true of the economic effects, which will include higher inflation and slower growth.

Powell’s thesis at the time was that President Trump’s tariffs would result in higher inflation and slower growth—the textbook understanding of stagflation.

As I have written on a number of occasions, however, the risks of stagflation have been lurking in the US economy for the past few years. Those risks did not emerge just because of President Trump nor because of the Liberation Day tariffs. While I dispute the contribution of Trump’s tariffs to those risks, I have never disputed the existence of those risks. Quite the contrary, I have been arguing the existence of those risks even when Powell and other “experts” denied them.

What makes stagflation challenging to comprehend—or to even grasp that it is occurring—is that it is a counterintuitive phenomenon.

Inflation—rising prices—is largely considered a sign of rampant economic activity. In Milton Friedman’s monetarist view of inflation, inflation rises when the velocity of money rises4.

This phenomenon of prices changing by more than the difference between the change in output and the change in money stock is often observed and is not special to these particular periods in India. The reason is not far to seek. When prices are going down, money becomes a more desirable way in which to hold assets; its value is increasing day by day; hence people have a strong tendency, if they expect the price decline to continue, to hold a larger fraction of their wealth in the form of money. On the other side of the picture, when prices are going up, money becomes a less desirable form in which to hold assets. In consequence, people tend to economise on their money balances; velocity tends to increase. How much velocity will change depends on whether the fall in prices or the rise in prices is anticipated. Generally, when inflation has started after a period of roughly stable prices, people initially do not expect prices to continue rising. They regard the price rise as temporary and expect prices to fall later on. In consequence, they have tended to increase their monetary holdings and the price rise has been less than the rise in the stock of money. Then as people gradually become wise to what is going on, they tend to re-adjust their holdings. Prices then rise more than in proportion to the stock of money. Eventually people come to expect roughly what is happening and prices rise in proportion to the stock of money.

Money velocity is simply the number of times money circulates through the economy. The more money is circulating, the higher the money velocity. The higher the money velocity, the more people are buying and consuming, and thus the more they tend to bid up prices for goods and services. Thus inflation is commonly apprehended as the consequence of runaway market activity.

However, factors such as falling productivity and rising joblessness are generally associated not with inflation but with its inverse5.

The inverse of inflation, of course, is deflation.

Strictly speaking, “deflation” is falling prices. Obviously, consumer prices are not going to rise and fall at the same time. However, one of the forces which can drive deflation is a drop in aggregate demand6. This intuitively makes sense: people buy less and prices come down.

If people are buying less, then by definition the consumption portion of an economy is contracting—or “deflating”.

When we look at real personal consumption expenditures year on year since January 2024, there has been a clear drop in consumption.

A drop in consumption is indisputably a deflationary force, even though we are seeing rising inflation and not deflation in consumer prices overall.

As stagflation occurs when we are seeing stagnant growth or even contraction in the economy while prices are rising, it necessarily occurs when we see both inflationary and deflationary forces exerting significant economic influence simultaneously. I frequently apply a shorthand description by saying that stagflation is when inflation and deflation occur together, but the crucial understanding here is that we are experiencing an economy subjected to oppositional stresses.

The US economy is quite literally being pulled in opposite directions, as it is arguably trying to expand and contract at the same time.

The combined magnitude of the oppositional forces might be dismissively mild in Powell’s view, but that the combined magnitude is not zero is on its own worth of note and should not be dismissed.

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We are not seeing, at present, high inflation in the US economy. We are seeing rising inflation, but at an incremental level which is not at present cause for alarm on its own.

We have been seeing considerable signs of economic stagnation. I have been writing for months about the “jobs recession”. Even Moody’s Analytics Chief Economist Mark Zandi last December embraced the term in giving his stark assessment of the US economy.

The stark assessment comes as hiring has stalled, unemployment is rising—especially for the most vulnerable workers—and layoff announcements are piling up. To Zandi, the next stage is already visible: “If we actually do see layoffs pick up,” he told Fortune, “then it certainly would be a jobs recession.”

This is where Powell loses the narrative when it comes to stagflation.

No, we are not seeing stagflation at present, except in the most incremental and technical fashion. The oppositional forces are present and discernible, but they are not (yet) at a 1970s level of severity.

We are, however, seeing several indicators that a stagflation scenario is a real risk to the economy. A significant inflation shock coupled with the soft labor markets the United States has endured for the past few years could very easily translate into a stagflation scenario.

Bear in mind that a significant inflation shock is heading towards us and likely to hit very soon, as the war with Iran has sent oil prices soaring.

Soft labor markets and some very nasty oil price shocks are what gave us stagflation in the 1970s.

We have soft labor markets. We are about to have a very nasty oil price shock.

Will we have a repeat of 1970s stagflation?

At present, we do not know. We can safely forecast that there will be consumer price inflation in March, and possibly April and May as well as a result of the oil price rises that have happened since February 28. We cannot extrapolate with any accuracy how much consumer price inflation we will get.

We should not, however, ignore the possibilities for stagflation which are demonstrably lurking right now in the US economy.

The jobs recession is real. Soft labor markets have been the reality of the US economy since at least 2022.

The potential for a significant oil price shock is real. When we have news reports of Iran and Israel bombing Persian Gulf oil production facilities, that there will be an oil price shock in the very near future is practically a given.

Powell was wrong about stagflation. He was wrong to pretend there is no risk of stagflation. He was factually wrong about unemployment, just as he has been for years.

We are not experiencing significant stagflation at present. We are at far greater risk of significant stagflation than either Washington or Wall Street have the courage to admit.

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The number of job openings was little changed at 6.9 million in January, the U.S. Bureau of Labor Statistics reported today. Hires were unchanged at 5.3 million, while total separations changed little at 5.1 million. Within separations, quits (3.1 million) and layoffs and discharges (1.6 million) changed little.

While the BLS does love its “little changed” rhetoric, the “little changes” reported in the JOLTS report were in the right direction—towards job growth and an end to the jobs recession.

The JOLTS report also shows many of the same trends as the January Employment Situation Summary, and paints a much stronger picture of US labor markets than the January ADP National Employment Report. It gives credence to the proposition that the January jobs report was more than just a hot mess of Lou Costello Labor Math.

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Job Openings Still Not The Point

Corporate media naturally retained its fixation on job openings, as if the pretense that there is a job waiting to be filled is economically the same as actually filling the job. It isn’t, of course, but that reality has never kept corporate media from dismissing hiring while hyping mostly fake job openings.

Job openings, a ‌measure of labor demand, rose by 396,000 to 6.946 million by the last day of January, the Labor ​Department’s Bureau of Labor Statistics said ​in its Job Openings and Labor Turnover ⁠Survey, or JOLTS report, on Friday. ​Economists polled by Reuters had forecast 6.70 million ​unfilled jobs. The job openings rate increased to 4.2% from 4.0% in December.

Wall Street’s consensus was 6.7 million job openings, and the Trading Economics forecast was 6.5 million. The actual number reported on the JOLTS report bested both estimates by a substantial margin.

To be sure, actual hirings themselves did not grow significantly in January, although openings did move up noticeably.

What is significant, however, is that as hiring moved up a little, separations moved down a lot.

The result is that net hiring increased significantly in January.

Even when we focus on just the private sector, the end result is the same: a substantial increase in net hiring.

While the net hiring growth came largely from a decline in separations, the end result still points to an overall increase in the number of people on a payroll somewhere in the US. Net hiring is actual job growth in every scenario.

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Manufacturing Job Gains—Barely

Net hiring in manufacturing was positive for January, although just barely. As with the jobs report, Manufacturing has been losing jobs steadily for over a year, and the January uptick barely stops that bleeding.

Construction, which languished for most of 2025, printed its third consecutive month of positive net hiring.

Trade, Transportation, and Utilities, another sector which had a bad 2025, also eked out marginal job gains.

Professional and Business Services posted its second month of positive net hires.

Meanwhile, Healthcare posted its strongest net hiring figures in a year.

While Leisure and Hospitality has seen declining net hiring numbers, it still printed a sixth consecutive month of positive net hiring.

This is the most encouraging aspect of the JOLTS data: every jobs sector except government showed at least marginal job growth. That is broader job growth than either the BLS Employment Situation Summary or the ADP National Employment Report shows for January.

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Confirmation For Employment Situation Summary?

The most notable aspect of the January JOLTS report is that it gives support to the January Employment Situation Summary.

If anything, the JOLTS report is even more positive than the Employment Situation Report for January. While the January jobs report showed private employment jobs gains of 146,000 jobs overall, the JOLTS report for January printed 203,000 jobs.

The JOLTS report shows a far healthier jobs situation than the January ADP report, which printed at an anemic 22,000 private jobs gain.

It is worth noting that, with the January report, the JOLTS figures show their third month of net hiring growth, whereas the ADP report shows a declining hiring trend, and the Employment Situation Summary printed hot and cold on job growth over the same period.

Which reports should we trust? The ultimate answer is always going to be “none of them.” Even without the statistical garbage that has been a staple of the BLS jobs report for years at this point, we cannot lose sight of the reality that all of these surveys are just that—surveys. The final result is an estimate of actual job growth. Each of these reports will contain at least some error.

However, we should also note that, despite the statistical flaws and data handling mistakes present in each data set, the ADP report, the BLS jobs report, and the BLS JOLTS report all show broadly the same labor trends over time.

While the variances within any given month can be significant, all three reports show a declining net hiring trend since 2021.

When we speak of the “jobs recession”, this is an illustration of what that means—fewer new jobs, declining job growth, and in many cases, job loss.

Where the JOLTS and the BLS jobs report concur is that January saw an increase in new jobs, while the ADP report showed new jobs shrinking even further in January.

This will make the February JOLTS data particularly important, as we already know the February Employment Situation Summary is tremendously ugly, inverting the optimism and pessimism of the January ADP and BLS job reports. Which direction the February JOLTS data moves will either give credence to the negatives in the February BLS jobs data or help mitigate some of them.

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Never As Bad, Never As Good

Overall, the January JOLTS report is good news. It bolsters the January Employment Situation Summary while mitigating the negative ADP National Employment Report.

Next month, we may very well see the opposite situation, with the JOLTS data confirming the ADP data while mitigating the BLS Employment Situation Summary data.

Thus, the JOLTS report stands as a useful reminder that the jobs outlook in this country is rarely as positive or as negative as the major reports will make it out to be.

The JOLTS data over time confirms the broad labor trends in the US economy, including the deepening jobs recession as hiring and actual job growth have slowed.

The JOLTS data also suggests that, contrary to what the ADP report showed for January, the jobs recession may be about to end, although any extrapolation along those lines must wait until we have the February data to compare to the February Employment Situation Summary especially. If the February JOLTS report mirrors that jobs data, then the jobs recession is in fact getting even worse.

Which outcome will it be? For that answer we must wait another month.

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From the preceding month, the PCE price index for January increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.4 percent.

From the same month one year ago, the PCE price index for January increased 2.8 percent. Excluding food and energy, the PCE price index increased 3.1 percent from one year ago.

Headline inflation was almost exactly where Trading Economics projected it would be.

The PCE Price Index (PCEPI) came in slightly higher than had been projected by the Cleveland Federal Reserve inflation nowcast.

The PCEPI inflation story for January is almost a replica of the PCEPI inflation story for December. The warning signals of both inflation and deflation from December persisted in January, making skepticism and even pessimism by far the more appropriate perspective for the start of 2026.

The lack of significant change is a warning sign that stagnation and even deflation may be around the corner for the US economy. The economy has flirted with that slow-motion decline for a number of years now, and we may be seeing signs that flirtation is not yet finished.

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PCEPI And CPI Diverging, Signalling A Pricing Shift Of Some Kind

Headline inflation eased down 0.1pp year on year in the January PCEPI to 2.8%, while core inflation rose to 3.1% year on year.

Month on month, headline inflation also dropped 0.1pp, to 0.3%, while core inflation remained largely unchanged.

January was at least the third straight month we see the PCEPI and CPI inflation data diverging to an increasing degree. Even though headline inflation declined for both year on year, the CPI inflation decreases have been much greater in recent months, so that the cooling trend visible in the CPI data has not been readily apparent in the PCEPI data.

That divergence is visible in core inflation as well.

We cannot infer that one index is “right” and the other index is “wrong”, but the divergence does tell us that the two data sets are picking up different signals to different degrees. A pricing shift of some sort is emerging, although we cannot say yet whether that shift is going to be more deflationary than inflationary.

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Food Price Inflation Cooled Again

In a welcome reversal from December, food price inflation cooled month on month for January.

Surprisingly, energy prices went into deflation month on month.

This is somewhat surprising not just because of the severe weather this country has seen over the winter, but also because benchmark crude prices rose steadily throughout the month.

Even reformulated gas futures climbed steadily throughout January, adding another inflationary impulse into pricing.

That gasoline prices fell at the pump in January, according to the EIA, arguably kept energy price inflation from heating up.

While falling energy prices are always welcome, the price indices can only ignore the underlying price data for so long. At some point corporate America is going to pass along the inflationary impulses and price pressures it has accumulated.

Within core inflation, nondurable goods prices actually fell month on month, while durable goods inflation cooled considerably.

Service price inflation heated up slightly, but the overarching trend for core inflation is disinflation.

This is not going to last.

We should anticipate significant increases for inflation in both the CPI and PCEPI once March rolls around. As I have observed more than once, the late-February price surge in benchmark crude oil prices is sure to produce significant inflation for March. Not only will headline inflation surge with rising energy prices, but rising energy costs very likely will percolate through to other goods and services.

Enjoy the cooler inflation levels now, because they are about to change.

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Rising Prices, Falling Consumption

One reason for the cooling of goods price inflation is that, for the second month in a row, people spent less money on goods, while spending more money on services.

When people buy less, the impact of inflationary pressures is blunted—without buying behavior, there is no support for a particular price level for any good or service. That much is economics 101.

The rise in expenditures for services meant that overall real personal consumption expenditures rose for January.

As I speculated for December, falling goods consumption arguably acted as a restraint on goods price inflation. Declining consumption invariably means people are choosing not to purchase things, or are postponing those purchases. Both consumption behaviors are indicative of deflation rather than inflation.

Remarkably, the decline in durable goods consumption occurred during a month when real disposable personal income surged, far outpacing overall consumption.

Notably, rise in disposable income did not translate into a rise in consumption. That lack of a consumption increase is a clear signal that deflation either is emerging or is a potential imminent risk in the economy.

If lack of consumption is a deflationary signal, does the continued rise in durable goods prices mean we are seeing at long last the results of President Trump’s Liberation Day tariffs?

To a degree, that is possible. However, we must note at the same time that durable goods especially were in deflation year on year from mid-2023 through mid-2025.

We should also note the shrinking amount of deflation measured from June 2024 onward. That decrease in deflation means various inflationary pressures were becoming more prominent in overall goods prices. That trend predates the Liberation Day tariffs by at least a year.

What other inflationary pressures might exist besides tariffs? Overall consumption is the most likely candidate, and moving into last spring durable goods consumption had been increasing year on year, becoming a more significant part of overall consumption.

We should also note that whatever inflationary pressure exists because of tariffs, the ultimate impact on durable and nondurable goods prices has been modest, with durable goods inflation not getting up to 2.5% year on year and nondurable goods inflation running at half that.

To the extent that tariffs are pushing prices up, they are not pushing prices up all that much. Nondurable goods inflation in particular was quite a bit higher during the Obama years without triggering any significant inflation fears.

With durable goods having been in deflation for over a decade prior to the 2022 hyperinflation cycle, rising goods prices now may simply represent a long-overdue reversion to mean within durable goods pricing.

Are tariffs a factor? Absolutely. However, they are not the only factor and it is still far from clear that they are a primary factor even for durable goods. Inflation and deflation are the resolution of all pressures on prices, making the relationship between overall inflation and various factors not a linear relationship but a differential one.

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Lack Of Consumption Is A Bigger Concern Than Tariffs

Regardless of corporate media hyperventilations about “muh tariffs”, that consumption overall has been in long-term decline is by far the greater worry.

As I have discussed numerous times previously, the potential for stagflation and even deflation in the US economy is a real concern, and one that has been present in the data for a number of years.

We only have to look at China’s deflating economy to see the perils of anemic and declining consumption.

Despite all the propaganda narratives to the contrary, lack of consumption remains China’s singular economic vulnerability. If lack of consumption is bad news for China, it is bad news for the United States as well.

Lack of strong consumption growth also once again cuts against President Trump’s “Golden Age” rhetoric. It is difficult to argue persuasively that this represents an economic “Golden Age” for the United States when people are displaying reluctance to purchase goods and consume things.

When the middle economic strata are feeling flush with cash they tend to consume more, as a rule, as they will have already satisfied their desire for savings and defensive measures such as paying down debt. If we are not seeing significant consumption growth, and we have not seen that for the past six months especially, then we do not have good evidence the middle economic strata are feeling flush with cash, even after January’s increase in disposable income.

This also highlights the perverse nature of deflation within an economy. Where inflation comes on fast and is easily seen as an immediate economic shock, deflation tends to be a slow decline. Deflation does not meant the economy collapses, but merely withers way gradually over time.

Are we seeing a rising risk of deflation in the economy? We are. We’re not there yet, but the concern is real and should not be ignored. That we are seeing inflation signals on top of that means what could be unfolding is a stagflation scenario, with strong inflation and deflation pressures occurring simultaneously.

Inflation in the January Personal Income and Outlays report did not change much from December—and that very likely is cause for concern. We’ve endured “lost decades” of stagnation and deflation already. Signs that we may be about to go through that again are not at all comforting.

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The fog of war has not stopped elements of the chattering class across both corporate and alternative media from posturing and pontificating about the significance of this or that aspect of Operation Epic Fury. The fog of war has stopped those elements of having anything more substantive than their own opinions—all of which combined are not worth enough to make a down payment on a free hot dog.

Wars are messy, unpredictable things. The only rational basis for analyzing a war as it unfolds is the often-maligned but timeless observation of former Secretary of Defense Donald Rumsfeld:

Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns -- the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.

Any “analysis” which is not grounded in Rumsfeld’s epistemological humility is, regardless of who is spewing it forth, little more than arrant nonsense, and should be dismissed as such.

When we look at the “known knowns” of this war, we see that the US and Israel are continuing to bomb Iranian targets, Iran is continuing to launch retaliatory strikes in nearly every direction, not discriminating between Arab states and US/Israeli forces, and the Strait of Hormuz is very much a contested waterway. We know that the Iranian people have not risen up against the regime—yet. We know that the Assembly of Experts has selected former Supreme Leader Ayatollah Ali Khamenei’s son Mojtaba to succeed him—but has as of this writing not been seen in public nor even on television. We know that the IRGC in particular remains defiant and bellicose.

As for the “known unknowns”, we do not know with certainty the logistical limits of the United States and Israel. We do not know if Mojtaba Khamenei is severely injured, or if he is even alive. We do not know if Iran is holding back a reserve of missiles and drones for a particular attack on either the US or Israel. We do not know if the Arab states will attack Iran.

As for the unknown unknowns, they remain the impenetrable fog of war which surrounds every conflict. We cannot assess them because we cannot, by definition, even identify them.

Where does that leave any understanding of the war thus far? At present, we can say little more than “it’s not over yet.”

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The Battle For The Strait Of Hormuz

While it might be a stretch militarily to classify the contest taking place for control over the Strait of Hormuz a “battle”, that maritime choke point remains a primary combat zone, and the one which presents the greatest geopolitical ramifications.

What we know is that Iranian drones are continuing to attack oil tankers in an around the Persian Gulf, with a US-owned oil tanker being hit by a sea drone two nights ago.

In the preceding 24-hour period, as many as six vessels were hit by Iranian kamikaze drones.

What may be even more significant than the attacks on civilian shipping, however, are the drone attacks on Arab oil infrastructure around the Persian Gulf. At the same time Iranian drones were attacking six civilian ships, a drone strike was observed against the storage tank farm at MINA Petroleum Facility on the Port of Salalh in Oman.

Attacks such as that are a continuation of a pattern of Iranian aggression against Arab nations that commenced as soon as Iran began retaliating against US and Israeli air strikes, launching major missile barrages against the United Arab Emirates while also targeting Qatari and Saudi natural gas and oil refining facilities.

In the first public statement attributed to newly-installed Supreme Leader Mojtaba Khamenei, Iran intriguingly denies attacking civilian infrastructures, insisting that its attacks are limited to US bases only:

In the recent assault, some of these military bases were utilised; naturally, as we had clearly warned in advance, and without committing any act of aggression against those regional countries themselves, we have only targeted the US bases there. After this, we will have no choice but to continue this course of action. Though, we remain committed to the necessity of friendship with our neighbors.

Arab energy production facilities are not “US bases”, and there has not been any evidence Arab states are persuaded by either the attacks or the regime’s rhetoric to push US forces out of the region.

In that same address, Mojtaba Khamenei explicitly called for Iran to continue exerting control over the Strait of Hormuz and blocking oil traffic from leaving the Persian Gulf.

Iran’s declared position is indisputable: they mean to use the interdiction of maritime traffic through the Strait of Hormuz as a pressure tactic to compel the United States to stand down its forces and cease Operation Epic Fury.

President Trump’s position is equally indisputable: Iran’s efforts to blockade the vial waterway will be met with force. If necessary, the US Navy will soon begin escorting vessels through the passage to ensure oil cargoes are able to be delivered.

The disruption has led President Trump to consider offering naval escorts to ships passing through the Strait of Hormuz, in the hopes that military protection could clear up the gridlock.

“When the time comes, the U.S. Navy and its partners will escort tankers through the Strait if needed,” the president told reporters Monday. “I hope it’s not going to be needed, but if it’s needed, we’ll escort them right through.”

But administration officials have suggested they aren’t prepared to start carrying out naval escorts just yet. Energy Secretary Christopher Wright said this week “it’ll happen relatively soon, but it can’t happen now,” and pointed to the end of the month as a possible timeline.

Thus far, President Trump’s reassurances have helped restrain the rise of benchmark crude oil prices, but were not able to keep Brent Crude from once again breaching the $100/bbl threshold on Friday.

Iran’s efforts to disrupt Persian Gulf oil production have indisputably succeeded in raising global oil prices. As I have observed multiple times, we are going to have a pronounced inflationary surge in March.

Because of that inflationary surge, Iran’s regional pressure tactics in this war—and indeed the war itself—are catalyzing global consequences.

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The Chinese Connection

The global scope of Operation Epic Fury’s ultimate impact is made unmistakable by last week’s emergence of lengthy gas lines in China, where the people are facing significant gasoline price increases.

The price rises are not illusory, as the gas lines are being occasioned by official announcements from Beijing raising retail price caps on gasoline and diesel fuel. China has bluntly told its citizens that energy prices are going to rise dramatically, producing an oil shock akin to the ones infamously experienced by the United States during the 1970s, even though Iran has gone to some lengths to keep oil flowing to the Middle Kingdom.

Remarkably, Beijing’s efforts to stockpile oil over the years are proving an incomplete buffer to Persian Gulf oil disruptions. China has the largest onshore crude stockpiles in the world, but that amount provides only approximately 2-3 months of refinery demand. Japan and South Korea, two other nations greatly exposed to Persian Gulf oil production, have crude stockpiles for over six months of refinery demand.

Much of China’s vulnerability comes from scale. China is the largest oil importer in the world by far, and has made a point of buying as much sanctioned oil from Iran, Venezuela, and Russia as it can. Consequently, China has been Iran’s principal customer over the years, accounting for as much as 90% of Iran’s total oil exports.

China’s interest in Iranian crude has been a driving force behind China’s efforts to build power and influence in the Persian Gulf, including agreeing to help Iran rebuild its air defenses after last year’s Twelve Day War with Israel.

China’s interests in Iranian crude may also have been one of the motivating factors behind President Trump’s decision yesterday to attack presumptively “military” targets on Iran’s Kharg Island, where 90% of its oil export operations take place.

The decision to strike at Kharg Island illustrates the risk many pundits invite with interpretations of unfolding events, as a number of pro-Trump commentators pointed to a lack of strikes there as demonstrative of President Trump’s strategic finesse and tactical granularity in prosecuting Operation Epic Fury.

Many folks are deeply confused about the significance of yesterday’s refinery strike. It didn’t damage Iran’s ability to export oil, since the refinery strike on Tondgouyan didn’t affect the country’s export facilities like Kharg Island (more on that in a moment). It was a refinery for domestic fuel. Hitting Tondgouyan hit the IRGC’s ability to keep its trucks and war machinery running, and undermined the regime’s social compact— selling fuel to its own population

President Trump was not threatening Iran’s global oil exports—until he did.

The reality is that Kharg Island has always been a potential target, simply because of its pivotal role in Iran’s oil economy. The terminal’s vulnerability was something I specifically highlighted early on, when the media rumor mill was rife with speculation that Saudi Arabia was on the verge of joining the US and Israel in launching attacks on Iran.

More ominously, Saudi Arabia is reported to be weighing attack options against Iran’s oil infrastructure.

Saudi Arabia would target “Iranian oil facilities if Iran mounts a concerted attack on Aramco,” the source tells AFP, referring to the state oil giant.

We should note that Saudi Arabia does have attack options. Global Firepower ranks their air force as the 7th most powerful in the world—well ahead of Iran’s.

Moreover, Iran has several vulnerable facilities within easy reach of Saudi Arabia—not the least of which is the oil terminal at Kharg Island, which processes roughly 95% of Iran’s oil export volumes.

While Saudi Arabia has not (yet) launched any air strikes of its own against Iran, the vulnerability of Kharg Island to air strikes has always been part of the combat environment for this war. Until yesterday, prevailing wisdom was that disrupting Iran’s oil production to that degree carried too great a geopolitical risk to make strikes against the island worthwhile.

Analysts have said that the prospect of a U.S. move to seize Kharg Island, a strategically vital hub often referred to as Iran’s “oil lifeline,” is considered extremely high risk, both from a geopolitical and economic standpoint.

The five-mile-long coral island, which is located about 15 miles off the coast of mainland Iran in the waters of the northern Persian Gulf, has been left untouched through nearly two weeks of U.S. and Israeli-led strikes against Iran.

The Trump administration has discussed seizing the island, according to an Axios report on March 7, citing four unnamed sources with knowledge of the discussions.

Was Iran’s determination to keep supplying oil to China a factor in President Trump’s decision to launch air strikes against Kharg Island? There has been no public reporting saying that quiet part out loud, but the inference is obvious and even unavoidable.

However, we should also look at events outside of the Persian Gulf region which may have tipped the risk scales in favor of attacks on Kharg Island.

In yet another demonstration of its growing facility in drone warfare, as the US was launching Operation Epic Fury, Ukraine launched yet another drone strike on the Russian oil terminal at Novorossiysk, on the Black Sea. While Russia has been predictably tight-lipped about the extent of damage, Reuters has reported that the Sheskharis oil terminal suspended loading operations for at least a few days as a result of the attacks, and other media reports suggest that the damage inflicted on the terminal was significant.

Ukrainian outlet Exilenova Plus reported on Telegram that port infrastructure in Novorossiysk is on fire.

An analysis by Astra from videos posted by Exilenova and eyewitnesses on social media suggests that it is the Transneft Sheskharis loading terminal on the east side of the bay that is on fire.

This is not the first attack on the Sheskharis terminal—it was hit in November last year, along with Russian energy export infrastructure at the nearby Tuapse and Temryuk ports.

Remember, China is a principal buyer of sanctioned oil, which is to say it is a primary customer not just for Iran but also for Russia—and Russia’s own export operations are experiencing their own duress, courtesy of the war in Ukraine.

At the same time, yesterday Sweden has seized yet another “shadow fleet” tanker, ships upon which Iran and Russia depend to carry sanctioned oil to their customers—which is to say, to China. This was Sweden’s second such seizure this month, having earlier detained the cargo ship Caffa.

On March 1, Belgium seized the Ethera, a shadow fleet tanker presumably falsely flying the Guinean flag.

These are seizure operations which have occurred just since the start of Operation Epic Fury.

While we should not overstate the immediate impact of either the temporary disruption of loadings at the Sheshkaris terminal or the loss of a couple of shadow fleet tankers on China’s overall oil imports, these events are indicative of a measure of stress being imposed on sanctioned oil flows worldwide, oil flows which primarily go to China.

Have global efforts to curtail sanctioned oil flows put enough pressure on China’s oil consumption to where disrupting Kharg Island operations has a maximized impact on China? That is speculation, but what is not speculation is that China buys up most of the world’s sanctioned oil, that China buys virtually all of Iran’s oil production, and that having to buy that same volume of unsanctioned oil would be a substantial cost increase to China—at a time when China is already grappling with persistent deflation and an increasingly sclerotic export sector, and can ill afford the disruptive impacts of a major oil price shock.

Regardless of the reasons why, President Trump’s air strikes on Kharg Island appear to have come a time when they will have the greatest geopolitical reverberations worldwide.

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Is Mojtaba Khamenei Even Alive?

The fog of surrounding this war with Iran is without a doubt the thickest where questions about Iran’s new Supreme Leader, Mojtaba Khamenei, are concerned.

Bizarrely, media sources cannot at this time even confirm if Mojtaba Khamenei is alive or dead. While orchestrated demonstrations of support for his accession have occurred in several cities, Mojtaba, the son of slain former Supreme Leader Ayatollah Ali Khamenei, has yet to be seen in public, or even to make a televised address.

Even those presumably within the government and close to the inner circles of power are not claiming to have seen or spoken with the younger Khamenei. The one consistent theme in what has been reported about his status is that he was injured in the initial attacks on February 28.

Iran’s new Supreme Leader Mojtaba Khamenei has been injured but is “safe and sound,” the son of President Masoud Pezeshkian said on Wednesday, offering one of the few official explanations for his absence from public view since being appointed last week.

Yousef Pezeshkian, who is also a government adviser, wrote on Telegram that he had asked contacts about reports of Khamenei’s injury and was told he was safe.

“I heard news that Mr. Mojtaba Khamenei had been injured. I have asked some friends who had connections. They told me that, thank God, he is safe and sound,” he said.

Even Mojtaba Khamenei’s recent remarks were a written statement actually read by presenters on state news media and not delivered by Khamenei himself.

That he is apparently severely injured or even dead begs the question of why he was chosen to be Supreme Leader.

There have also been persistent rumours that he was killed or left in a coma from the attack, which the written address has done little to alleviate.

Hossein Alizadeh, a former Iranian diplomat, put the question directly: “If his injuries are so severe that he cannot even record his voice, why was he chosen?”

That is not an idle question. Even as the Assembly of Experts was struggling to gather to elect a new Supreme Leader, criticisms of the younger Khamenei were in abundance, not the least of which has been his conspicuous lack of significant religious credentials.

These gaps in his resume have fueled speculation that Khamenei was the desired choice of the Islamic Revolutionary Guard Corps, who some believe effectively ordered the Assembly of Experts to elect the younger Khamenei.

Even if Khamenei is still alive and not in a coma, the manner in which he was tapped to be the Supreme Leader invites the speculation that he is little more than an IRGC puppet, and that his ability to rule hinges on his continued good relations with the IRGC leadership.

What those pledges have also made clear is that the IRGC is now the dominant power in Iran, regardless of whom formally holds the supreme leadership title – and that this would probably be true whether Mojtaba was healthy and present or wounded and absent.

“The supreme leader is no longer really supreme,” said Ali Vaez, an Iran expert at the Crisis Group think tank. “It is really the Revolutionary Guards who are running the show – and without whom Mojtaba would not be able to preserve his power.”

He added: “Both because he needs them to push back against his foreign enemies, and because he needs them to keep the population at bay.”

If that is indeed the case, the Iranian regime’s theocratic nature has been significantly diluted, with a more base (and more kleptocratic) authoritarianism dressed up as Islamofascism supplanting Shi’a conservatism.

However, if Mojtaba Khamenei is not alive, or is in a coma as some have speculated, the IRGC foisting him on the Assembly of Experts presents a conundrum for the IRGC leadership should that ruse be revealed to the Iranian people.

The existing power brokers in the regime besides Khamenei, men like Secretary to the Supreme National Security Council Ali Larijani, cannot become Supreme Leader because, both within Iran’s constitution and within the doctrines of Velâyat-e Faqih (ولایت فقیه in Persian) developed by the Islamic Republic’s founder Ayatollah Ruhollah Khomeini, the Supreme Leader must be a senior and substantive cleric. Mojtaba Khamenei was reportedly believed to have exceedingly thin religious credentials, but Larijani has no religious credentials.

The Supreme Leader might be dependent upon the IRGC infrastructure to prop up his rule, but the IRGC leadership needs a compliant Supreme Leader because they themselves cannot take on that role.

What becomes of IRGC political credibility even among Iran’s more conservative elements if they are found out to have so corruptly tainted the succession process by imposing either a coma patient or a corpse as Supreme Leader of the Islamic Republic?

In the Khomeini doctrine, the Supreme Leader is to be a sort of religious guardian, able to keep the government and the people moving along lines compliant with Islamic law and Shi’a religious doctrine. A Supreme Leader who is quite literally just a poster on a stage seems quite the blasphemous mockery of the role and the Islamic theology behind it.

The IRGC leadership may have imposed Mojtaba Khamenei on the Assembly of Experts in a bid for time, hopefully time enough for the US and Israel to exhaust their logistics and will to wage war, but if that time runs out, what becomes of the regime then?

Could that be the moment when the Iranian people decide the IRGC has got to go, no matter what? Could exposure of IRGC mendacity be the needed catalyst to fuel secular regime change in Iran?

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We Still Do Not Know

As Operation Epic Fury proceeds into its third week, what is clear is that the “known unknowns” far exceed the “known knowns” regarding both the war and its proximate outcomes for the Middle East and for the world. After two weeks of war, rumors of war, and reporting on war, we still do not know how this war ends.

We still do not know if the regime will fall.

We still do not know who would take over if the regime does fall.

We still do not know how long the war will last.

We still do not know how long before the price of oil comes back down to prewar levels.

We still do not know if Saudi Arabia, the United Arab Emirates, and other Arab states will join the war against Iran.

We still do not know what will become of Iran once Operation Epic Fury finally ends.

As is eternally true of every event, we still do not know what are the “unknown unknowns.” Every question for which we do not have a clear answer is almost surely matched by multiple questions we have not yet thought to even ask.

Will the military victory President Trump has almost certainly already secured be overmatched by geopolitical defeat? We cannot know, and we cannot even plausibly gauge how likely that scenario might be. The counterfactual is also plausible, that President Trump secures not just military but geopolitical victory, and the outcome of this ginormous US and Israeli flex is an exponential expansion of US power and influence in the world.

It is plausible to believe that expanding US power and influence is at the core of why President Trump launched Operation Epic Fury, but having that as a goal is not of itself a guarantee that goal will be achieved.

Would geopolitical victory make Operation Epic Fury a right decision by President Trump? That will ultimately be a matter of individual opinion.

Those who desire America have a more isolationist foreign policy will not see the US achieving greater engagement with the world as a good thing.

Those who believe that any conflict in the Middle East is yet another illegal and endless foreign war will not see Operation Epic Fury as a good thing or even a necessary thing.

Those who desire to see the United States fit more comfortably into a globalist “rules based order” anchored by supranational institutions such as the EU and the United Nations will not see an accretion of power to the US as a good thing.

Russia's Vladimir Putin and China’s Xi Jinping, both of whom have hegomonic ambitions of their own, are almost certainly rooting for US failure in Iran.

Those who want to see America First in the world, either as an outright hegemon or as primus inter pares within a globalist rules based order, very likely view Operation Epic Fury favorably.

Yet these various perspectives do not change the realities of Operation Epic Fury itself, the immediate impacts it is having on Middle Eastern nations, or the ultimate impacts it will have on the world.

Whether the decision to launch this war was good or bad, righteous or wicked, it is a decision that has been made. Decisions having been made, and actions having been taken, reactions must now unfold, and consequences must emerge.

All that we really know about what those consequences will be is just this: This war is not over yet.

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The all items index rose 2.4 percent for the 12 months ending February, the same increase as reported for the 12 months ending January. The all items less food and energy index rose 2.5 percent over the year, also the same increase as reported for the 12 months ending in January. The energy index increased 0.5 percent for the 12 months ending February. The food index increased 3.1 percent over the last year.

Naturally, the more egregious corporate media outlets such as Politico scoured the CPI data to find evidence of “surging” prices to justify their headlines.

Of course, “muh tariffs” once again bore much of the blame.

Once again, that narrative does not withstand even modest scrutiny, as is made plain when we unpack the data.

While President Trump Operation Epic Fury attacks on Iran are almost certain to produce a significant burst of inflation for March, February’s consumer price data is the calm before the coming storm. That’s a narrative that does withstand scrutiny, even when we unpack the data.

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Headline Inflation Did Not Change

Corporate media pearl-clutching notwithstanding, once again the inflation report was notable for the absence of…well…inflation.

Headline inflation technically rose from 2.39% year on year to 2.43% year on year.

Core inflation technically declined from 2.51% to 2.47% year on year. The BLS news release rounds to the nearest tenth of a percent, which means the 0.04pp shift for both headline and core inflation is not considered statistically significant.

Right away, that empirical reality discredits any narrative of prices “surging”.

Significantly, the year on year inflation rate was exactly where both the Wall Street consensus and the Trading Economics forecast expected it to be.

Even the Cleveland Fed’s inflation nowcast projected the year on year inflation rate at 2.4%.

Inflation behaving as expected had a steadying effect on Wall Street, muting some of the ongoing decline catalyzed by Operation Epic Fury.

Month on month, the change was the same: headline inflation rose 0.1pp, from 0.17% to 0.27% (reported by the BLS as 0.2% to 0.3%), while core inflation fell from 0.29% to 0.21%.

While inflation is still above the Fed’s holy grail level of 2% year on year, what inflation did not do in February is rise.

We should pause and note this will not be the case for the March data when it comes out, as by then we will see the early impacts of Operation Epic Fury on the economy.

Still, the data we have is for February and not March, and predates the war with Iran. We will have hotter inflation in March, but for February we are still blessed with a conspicuous lack of overall inflation.

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Energy Price Inflation Rose. Food…Not So Much

We do well to remember that food and energy prices are broken out from core consumer prices because they exhibit far greater volatility and much greater sensitivity to a variety of external factors.

For food prices, this is important because, month on month, food price inflation barely changed.

That is what Politico calls a “surge” in food prices. Yet even year on year, the increase in food price inflation fell well short of a “surge”.

Energy price inflation did return in February, rising 0.63% month on month.

This should not come as a complete surprise, however, given that benchmark crude prices were also rising in February.

We should also note that the bulk of February’s hotter energy price inflation print was from a legitimate spike in fuel oil prices, even as other energy price components were relatively muted in their fluctuations.

While it scarcely needs be said that energy price inflation is not desirable, March is going to be a month with severe energy price inflation. The surges in benchmark crude prices alone have made that all but inevitable. In March we should not be surprised to see every energy price component surging to the degree fuel oil did in February.

Still, with fuel oil being the only component with significant inflation for the month, we can fairly say that, overall, food and energy price inflation was relatively muted and even calm. Before war broke out, there was simply not a lot of either food or energy price inflation.

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Nondurables Printed Hottest Of All

The irony of Politico making their headline about food and energy is that nondurable goods printed the hottest inflation of all for February, rising 1.1% month on month.

Durable goods, meanwhile, printed yet another month of outright deflation.

For once, services were not leading the inflation race, cooling to 0.35% month on month.

Even rent of shelter retreated somewhat, printing at 0.29% month on month.

This marks the third consecutive month of disinflation for shelter pricing.

We should not expect that to remain the trend, however. The more forward looking Zillow Observed Rent Index charted an incremental uptick for shelter pricing, after printing deflation for the previous four month.

Still, even for nondurables the year on year inflation increase was not significant.

While nondurables posted a significant inflation bump month on month, the rest of core inflation performed exactly as expected. Across the board, inflation is simply not showing any significant sign of heating up.

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“Muh Tariffs” Is Still Hogwash And Horse Hockey

Because corporate media is persisting with their “muh tariffs” balderdash, once again it must be pointed out that overall consumer behavior is still not reflecting any significant impact from tariffs.

As was true in January, retail sales, both in the advance estimate and the retail estimate, was largely unchanged.

Indexed, both the advanced estimate and the retail estimate showed the most significant uptick in sales was for building materials—a sign which may augur well for the construction sector in coming months.

There simply is no support in the broad data for a significant inflationary effect attributable to President Trump’s tariffs.

Tariffs are an inflationary price pressure. That much is a given just by virtue of what a tariff is. However, that inflationary price pressure has not proven to be highly influential for consumer prices overall.

One reason to discount the impact of tariffs on prices is the reality that the inflation we would anticipate after last month’s Producer Price Index report did not emerge this month.

With the inflationary impulses seen in the Producer Price Index demonstrably not coming through to the Consumer Price Index, we must be skeptical about any individual inflationary impulse or price pressure percolating through the Consumer Price Index to print as higher inflation month on month or year on year.

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Theory vs Reality: Reality Always Wins

Corporate media is clearly disappointed that prices have not risen outrageously in the year Donald Trump has been in the Oval Office.

Corporate media will undoubtedly take perverse pleasure in the hotter inflation print that is almost sure to come next month, as the impact of Operation Epic Fury on oil prices especially takes hold.

We can expect a surge in energy price inflation especially. With reformulated gasoline prices having climbed 28% just since February 26, a surge in gasoline prices for March is practically a foregone conclusion.

At the same time, we should be mindful that February is not March. The inflation that is sure to come has not yet arrived.

Tariffs have not been a primary inflation factor.

Year on year, inflation has been cooling steadily since August, and while the war with Iran is sure to break that trend, it surely says something about the state of consumer price inflation that it took a war to break the disinflationary trend.

The inflation signals from the Producer Price Index also have not materialized, at least not yet.

While in theory PPI signals may take a couple of months to materialize, the prevailing presumption among most corporate media is that the PPI is a leading indicator for the CPI. By all accounts, the inflation print we saw in the PPI last month should have been reflected in the CPI data this month. Thus far, the inflation data has not transmitted an inflation impulse from the PPI to the CPI.

As the apocryphal Einstein quote goes, “in theory, theory and reality are the same. In reality, theory and reality are different.”

In theory, tariffs are a primary contributor to consumer price inflation.

In theory, inflation surges in the PPI show up in the CPI in the following month or two.

In reality, tariffs have not had significant impact on consumer price inflation.

In reality, the inflation impulses in the PPI have not percolated through to the CPI.

No matter what theory says will happen, when reality does not show that happening, reality triumphs over theory. It must and it will, every time.

No matter how much corporate media says “muh tariffs” will produce inflation, when reality does not show inflation, the “muh tariffs” narrative stands discredited and debunked. It must and it will, every time.

The reality of consumer price inflation is that, despite all the fear-mongering and pearl-clutching of corporate media, President Trump’s policies have not produced significant consumer price inflation. His tariffs and trade policies will produce their network effects, but broad consumer price inflation has not numbered among them.

The war in Iran is sure to produce a significant uptick in consumer price inflation. Given the lack of inflation to date under Donald Trump, the war in Iran is sure to be the only reason we see a significant uptick in consumer price inflation in March.

That likelihood by itself stands as a backhanded tribute to Donald Trump’s economic policies thus far. War is the only one of President Trump’s policies that is likely to produce notable inflation. All of Trump’s other policies have proven to be anything but inflationary.

Corporate media will not be pleased it took a war to bring back inflation into the US economy. Most consumers will be quite pleased—and should be.

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Perhaps unsurprisingly, the fog of war has only increased in that week. Many of the lingering questions from the outset of the war are no closer to being answered.

Can Iran keep the Strait of Hormuz closed?

Will the Iranian regime survive?

Will the Arab states join the war against Iran?

At present, even after a week of emerging information, the answer to each of these questions remains “we do not know.” There are signs and hints, but what is known is in every instance less than conclusive—and information is still emerging, putting the constant caveat of “as of this writing” on everything covered here.

Still, with more speculation than fact swirling around in the media, we do well to keep a close eye on the facts that we do know.

The information reported here is current as of Monday evening, March 9. Circumstances may easily overtake what has been reported thus far.

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Can Iran Keep The Straight Of Hormuz Closed?

The most pressing global question is without a doubt the status of the Strait of Hormuz, easily the most vulnerable and most crucial maritime choke point affecting global oil flows.

Last week, IRGC commanders threatened to burn any tanker which attempted to transit the vital waterway between the Persian Gulf and the Gulf of Oman.

“Any ship that seeks to pass through the Strait of Hormuz we will set on fire,” Brigadier General Ebrahim Jabbari said in remarks carried by Iranian media on Monday.

Understandably, a number of tanker captains and their crews were reluctant to chance an Iranian attack, with the result that the seas on either side of the Strait quickly filled with blockaded tankers.

Even as those threats were being made, reports of oil tankers coming under attack were emerging.

So far three commercial ships have suffered direct hits. This morning come reports that the tanker Stena Imperative was temporarily on fire after being hit at port in Bahrain. Over the weekend a sailor in the engine room of the tanker MKD VYOM died when an Iranian rocket hit it off Oman. A much smaller tanker, the Skylight, was also hit and evacuated while on fire. Friendly fire? According to TankerTrackers, Skylight had been anchored 5 miles north of Khasab, Oman for the past week and has a history of being used by Iranian ships for bunkering, or refueling.

On March 5, Middle East Monitor reported that Iran’s Islamic Revolutionary Guard Corps claimed a successful attack on a US ship in the Persian Gulf.

The Guards’ Public Relations Department said in a statement carried by the state news agency IRNA that Iranian naval forces “successfully targeted an American oil tanker in the northern Persian Gulf.”

Over this past weekend, additional reports emerged of an Iranian attack on the Marshall Islands-flagged Louis P near the Saudi port city of Jubail.

The IRGC quickly claimed credit for the attack.

“An oil tanker operating under the commercial name ‘Louise P’, flying the flag of the Marshall Islands and considered one of the assets of terrorist America, was struck by a drone in the central Persian Gulf,” the IRGC statement said.

While it was unclear this time last week how successful Iran would be in interdicting traffic through the Strait of Hormuz, it is clear that Iran has been determined to disrupt vital oil traffic in that passage.

Benchmark oil prices have predictably soared as a result of both the real and threatened disruptions to Middle Eastern oil flows, with Brent Crude flirting with $120/bbl over the weekend, while West Texas Intermediate moved past $110/bbl before retreating below $100/bbl by Monday morning.

By the end of the day Monday Brent Crude had retreated to $93/bbl, and West Texas Intermediate had descended to $86/bbl.

Equally predictably, before Monday’s price freefall there had been considerable speculation that oil prices will move even higher, as Iran proved to have been quite effective in stopping tankers passing through the narrow strait.

Goldman Sachs had anticipated that flows of crude through the strait would fall to 15% of normal levels but Iran’s effective blockade on tankers passing through the narrow waterway mean that only 10% of oil cargoes that usually transit the trade route have been able to pass.

In a bid to alleviate global price pressures, the United States responded by granting India a 30-day waiver to purchased otherwise sanctioned Russian crude.

Whether the waiver was a significant factor in Monday’s oil futures retreat is of course not knowable at this time.

Equally uncertain is whether or not Iran is still able and intent on closing the Strait of Hormuz to maritime traffic. Ali Larijani, Secretary of the Supreme National Security Council and Iran’s top security official, threw considerable shade on the prospect of the Strait being open so long as hostilities were ongoing.

“It is unlikely that any security will be achieved in the Strait of Hormuz amid the fires of war ignited by the United States and Israel in the region, especially if it is designed by parties that were not far from supporting this war and contributing to fueling it,” Larijani said in a post on X.

Despite such remarks, oil prices still retreated yesterday afternoon.

In the short term, one clear beneficiary of the war with Iran is Russia, as its benchmark Urals Crude has moved to its highest prices in five years, reaching $90.97/bbl on Friday, March 6..

Will oil prices once again go higher? If Persian Gulf oil is found to be still cut off, absolutely. While oil prices did not hold yesterday, it would be facetious to mistake volatility for a reversion to the mean. So long as the Strait of Hormuz remains contested we should anticipate further benchmark crude price volatility, as well as price increases.

Could the world see a return to $100/bbl oil, or even a spike to $150/bbl? We cannot rule out either one, although as of this writing (Monday evening, March 9), both possibilities are a good deal less likely than they were just twelve hours ago.

However, the key word here is “if”. We do not know if or how long Iran can or will keep Persian Gulf oil bottled up. If the world believes the Strait of Hormuz is open to maritime traffic, then oil prices are less likely to surge again as they did over the weekend.

Speaking with CBS News correspondent Margaret Brennan on Sunday’s “Face the Nation”, US Energy Secretary Chris Wright expressed confidence that the oil price surge was strictly temporary, and that a quick end to the war would mean a quick restoration of previous price levels.

They shouldn’t go much higher than they are here because the world is very well supplied with oil. There’s no energy shortage at all in the Western Hemisphere. The United States is a net exporter of oil, a large net exporter of natural gas. But refineries in Asia and Europe are seeing an interruption from the normal crude flows. But there is massive energy stores around the world.

What you’re seeing is emotional reactions and fear that this is a long-term war. This is not a long-term war. It’s a temporary movement.

Sorry, go ahead. Temporary movement?

No, I’m saying, look, we’ve seen previous administration have done everything they could. They’ve begged, bartered and bribed the Iranian government to stop its nefarious activity, stop its murderous behavior. And it simply hasn’t worked. And now they’re expanding missile and drone program that are rapidly growing to protect their desire to build a nuclear weapon. We’re going to cross a threshold where we can’t put them back in the box. Now is the time to end their risk to America and the world.

Is Secretary Wright correct in his assessment?

Certainly with respect to the weekend surge into triple digits, he was spot on. Whether Secretary Wright is correct over the long term we do not know, and we cannot know. As with all war, we will not know when this war will end until it ends. Until it ends, the world can look forward to elevated oil prices, constituting an oil shock for many parts of the world.

For his part, President Trump on Monday sent a similar signal to Secretary Wright’s, stating in a telephone interview with CBS News that he felt Operation Epic Fury was very nearly complete.

“I think the war is very complete, pretty much,” the president said, speaking from his Doral, Florida, golf club. “[Iran has] no navy, no communications, they’ve got no air force. Their missiles are down to a scatter. Their drones are being blown up all over the place, including their manufacturing of drones.”

Much of the world no doubt breathed a sigh of relief upon hearing that assessment from Donald Trump. $90/bbl oil is a major energy price increase for most of the world's economies. $100/bbl is an oil price shock for most countries.

Deeloping economies dependent on energy imports are especially vulnerable to an oil price shock. Many sub-Saharan African nations in particular would face potentially severe price dislocations should there ever be an extended closure of the Strait of Hormuz. The global ramifications of Iran’s retaliatory actions have been not only significant, but potentially extreme.

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Will the Iranian regime survive?

One needs no particular expertise in geopolitics or economics to recognize that the future of global oil prices is closely connected to the future of the Iranian theocratic regime.

That we are speaking of the future of the regime at all at this point is itself rather remarkable. As I wrote at the very beginning of Operation Epic Fury, what was unfolding looked for all the world like the destruction of the Islamic Republic.

President Trump, in announcing the operation on video put out on Truth Social, very specifically called for the Iranian people to overthrow the regime.

Finally, to the great, proud people of Iran, I say tonight that the hour of your freedom is at hand. Stay sheltered. Don’t leave your home. It’s very dangerous outside. Bombs will be dropping everywhere. When we are finished, take over your government. It will be yours to take. This will be probably your only chance for generations.

However, the National Intelligence Council had assessed a fairly low probability of regime change being an outcome of military operations even before Operation Epic Fury commenced.

The report, completed about a week before the United States and Israel initiated the war on Feb. 28, outlined succession scenarios stemming from either a narrowly tailored campaign against Iran’s leaders or a broader assault against its leadership and government institutions, the people familiar with its findings said. In both cases, the intelligence concluded that Iran’s clerical and military establishment would respond to the killing of Supreme Leader Ayatollah Ali Khamenei by following protocols designed to preserve continuity of power, these people said.

The prospect of Iran’s fragmented opposition taking control of the country was described as “unlikely,” said the people, who spoke on the condition of anonymity t o discuss a classified report.

President Trump last Wednesday rather darkly hinted that any future Iranian Supreme Leader would quickly be killed by either US or Israeli attacks.

“Their leadership is just rapidly going. Everybody that seems to want to be a leader, they end up dead,” Trump said on Wednesday.

Despite the ominous and bellicose commentary, by the week’s end the Wall Street Journal was reporting that President Trump was shifting his war aims from regime change in Iran to a “surrender” by the regime.

“Even as the conflict has escalated into a regional crisis involving more than a dozen countries, President Donald Trump appears to be refining the rationale and endgame of the war on the fly, according to current and former US officials and allied diplomats,” the report said.

“It will be impossible to replicate the model in Iran, analysts say. Unlike in Venezuela, where the US was dealing with a hollowed-out petrostate, Washington is confronting an entrenched theocracy backed by a vast security apparatus that is built to preserve the system even after the loss of senior leaders,” the report added.

President Trump himself appeared to acknowledge an improbability of regime change in a CNN interview, where he stated openly he was prepared to accept a religious leader for Iran.

Trump also said he was open to having a religious leader in Iran. “Well I may be yeah, I mean, it depends on who the person is. I don’t mind religious leaders. I deal with a lot of religious leaders and they are fantastic,” he said.

And pressed on if he is insisting there needs to be a democratic state, Trump told CNN, “No, I’m saying there has to be a leader that’s going be fair and just. Do a great job. Treat the United States and Israel well, and treat the other countries in the Middle East — they’re all our partners.”

At the same time, on Friday Trump called for “unconditional surrender” by Iran.

Inside Iran, Iran’s Assembly of Experts, the clerical body tasked with selecting the next Supreme Leader, has selected Ayatollah Khamenei’s son Mojtaba to succeed him.

A statement from the Assembly of Experts — the panel of Shia clerics responsible under Iranian law for choosing the country’s top leader — said Mojtaba Khamenei had been selected as the third leader of the Islamic Republic, according to reports from IRIB state TV and the Fars, Tasnim and ISNA news agencies.

While Mojtaba has been officially chosen, it remains unclear if his accession to the position of Supreme Leader is sufficient to ensure the future of the regime.

President Trump himself has dismissed Mojtaba Khamenei as a “lightweight” who would not bring peace to Iran. Trump has repeatedly insisted he be involved in the selection of Iran’s next leader, a condition which would obviously exclude the junior Khamenei.

Intriguingly, at the outset of Operation Epic Fury there was a substantial body of speculation that Mojtaba Khamenei would not be tapped as his father’s successor, as he is widely viewed inside the regime as lacking key credentials.

The first challenge is likely to be constitutional requirements. As per the Islamic Republic’s constitution, Assembly of Experts appoints Khamenei’s successor. Candidates must have ‘political experience’ as per the law. Mojtaba reportedly fails on this account, the institute noted. This is because despite running the Office of the Supreme Leader, de facto, he’s had no formal political roles in the regime.

If Mojtaba were to be the next Supreme Leader it would go against the Shi’a Islamic convention, which notes that blood lineage for the mantle is exclusively reserved for 12 divinely ordained Shi’a Imams. Khamenei himself was elected supreme leader in 1989 over Khomeini’s influential son, Ahmad, due to this. In 2023, Khamenei had said in a speech “dictatorship and hereditary government are not Islamic,” as per US-based think tank, Stimson Center.

They also reported that Ayatollah Mahmoud Mohammadi Araghi, a member of the Assembly of Experts revealed in 2024, “The news reached the leader that the experts are investigating the case of Mojtaba’s leadership. The leader said, ‘What you are doing raises suspicions about the leadership’s hereditary issue.’ So the investigation was not allowed. … On another occasion, when they sought permission from the leader to investigate a person related to him, he responded, ‘No, draw a line under this issue’.”

As it became clear that Mojtaba would become the next Supreme Leader, speculation shifted to the possibility that the IRGC effectively forced his selection on the Assembly of Experts.

This is not a routine succession. It is a wartime decision shaped by the security state, and it raises serious questions about constitutional procedure. The priority appears to be speed and control, as the Islamic Republic faces attacks from outside and a leadership vacuum at the top.

If this view is correct, then the IRGC is now functioning as a sort of latter-day Persian Praetorian Guard, arbitrarily selecting the next ruler of the empire based on what fits their agenda, not what the rest of the government mandates and expects.

If this view is correct, then Mojtaba is arguably an IRGC puppet, with the theocratic elements of the regime being correspondingly diluted in favor of base authoritarianism.

At a minimum, Mojtaba Khamenei is broadly understood to have deep ties to the IRGC, and his background in security affairs may outweigh his problematic clerical credentials. His elevation would seem to give the IRGC added prominence within Iranian leadership circles, at least for now.

At the same time, it is an open question as to how much “regime” is left for Mojtaba Khamenei to govern. Not only has much of the senior leadership been killed, but Israel and the US are moving on in their strike packages to Iran’s eeconomically and politically vital oil infrastructure, with several oil storage facilities around Tehran being targeted over the weekend.

Israel is also reportedly striking oil refineries as well.

An extended analysis on X suggests this is a strategic effort to both weaken the regime and undermine Iran’s nominal ally (and principal oil customer) China.

Energy infrastructure is the bloodstream of a regime’s war machine.

Strike the fuel… you slow the missiles.
Strike the depots… you choke the logistics.
Strike the energy grid… you weaken the entire system.

Aqdasiyeh was not widely known for oil storage in older public records… but the pattern is unmistakable. Earlier strikes hit facilities tied to fuel distribution across Tehran, including the Shahran depot.

Now the fires have reached deep into the capital.

For Beijing this is a nightmare scenario.

China relies heavily on Iranian oil flowing east through a fragile web of sanctions evasion, shadow fleets, and backchannel supply chains. When depots burn in Tehran… supply chains tremble in Beijing.

Every explosion in Iranian energy infrastructure sends shockwaves through the strategic calculus of the Chinese Communist Party.

If this is the strategic calculus for the US and Israel, that strategy could reverberate back into global oil markets even after the war ends. Given that Iran’s oil infrastructure is clearly being targeted, with multiple oil storage facilities around Tehran being hit over the weekend, we cannot dismiss the possibility this is the strategic calculus behind Operation Epic Fury, or a calculus very close to this.

If China is not able to purchase Iranian crude or refined products because Iran’s own energy infrastructure is obliterated, China will have to purchase crude from other countries, which will permanently bid up the price of oil. Even if market speculation is correct that China has bulked up its oil reserves over the past year, those reserves can only last so long before China is forced back into global oil markets to purchase crude.

If Israel and the US effectively end the Iranian regime by ending its capacity to extract, export, and refine oil, they will also effectively remove a considerable quantity of oil from global supply.

Even if the US and Israel do not destabilize the regime by destroying Iran’s oil infrastructure, whether or not an uprising by the Iranian people culminating in regime change leaves the status of Iran’s oil wells and oil refineries very much up in the air. There exists the possibility that regime change could result in a disruption of Iranian oil production, which would again remove a considerable quantity of oil from global supply.

Chris Wright may think there’s not an oil shortage now. Would he still think that if Iran’s oil spigot were permanently turned off?

Ending the Iranian regime and thereby ending China’s access to Iranian oil—or ending China’s access to Iranian oil and thereby ending the Iranian regime—is fraught with inflationary perils for the rest of the world.

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Will the Arab states join the war against Iran?

After soaring energy prices, perhaps the world’s greatest concern in the war with Iran is the potential for that war to expand and encompass other Persian Gulf states.

Already last week saw Qatar shooting down a pair of Iranian Su-24 bombers, marking the first time an Arab state has fired on Iranian targets since the Iran-Iraq war of the 1980s.

In the immediate aftermath of the initial strikes by the US and Israel, Iran had responded by quite literally spraying missiles and drones all around the Middle East, apparently indiscriminately, with over 200 drones and 137 ballistic missiles being launched at UAE alone.

There were additional reports of attacks on both Qatari and Saudi natural gas and refining facilities.

As Bernard Haykel, Professor of Near Eastern Studies at Princeton University, frames the situation, these attacks on civilian infrastructure are pushing the Saudis—and, by extension, the rest of the Arab states—into open confrontation with Iran.

Haykel explained that Riyadh had previously communicated a specific warning to Tehran: if Saudi Arabia remained neutral during a US-Israel conflict with Iran, its infrastructure must remain off-limits.

“The Iranians did tell the Saudis that if they faced an existential attack by Israel and or America, that they would attack Saudi Arabia,” Haykel said. “And so the Saudis said, if you do that and we’re neutral, we will join forces with the Americans and attack you.”

Even Iran’s northern neighbor Azerbaijan found itself on the receiving end of a drone attack, for which Azerbaijan’s President Ilham Aliyev promised retaliation.

“Today a terrorist act was carried out from the Iranian side against the territory of Azerbaijan,” Aliyev told a security council meeting.

Azerbaijan’s military “has been instructed to prepare and carry out retaliatory measures” and “placed on mobilisation level number one, and must be ready to conduct any operation”, he added.

In a bizarre illustration of the “fog of war” at work, Iran’s President Masoud Pezeshkian apologized for the attacks on Iran’s neighbors—even as more attacks ensued.

Over the weekend, a desalination plant in Bahrain was reported struck by Iranian drones. Iran’s public reply to the accusation was to blame the United States.

“The Iranian aggression randomly bombs civilian targets and causes material damage to a water desalination plant following an attack by a drone,” the ministry statement said.

Iran said it was the United States that set a precedent for such attacks when it targeted a water desalination plant on Iranian soil.

“The US committed a blatant and desperate crime by attacking a freshwater desalination plant on Qeshm Island,” Iran’s Foreign Minister Abbas Araghchi said in a post on X on Saturday.

“Water supply in 30 villages has been impacted. Attacking Iran’s infrastructure is a dangerous move with grave consequences. The US set this precedent, not Iran.”

The attacks on water desalination plants is a particularly dicey escalation, as they are a vital infrastructure for many of the Persian Gulf countries.

In Kuwait, about 90% of drinking water comes from desalination, along with roughly 86% in Oman and about 70% in Saudi Arabia. The technology removes salt from seawater — most commonly by pushing it through ultrafine membranes in a process known as reverse osmosis — to produce the freshwater that sustains cities, hotels, industry and some agriculture across one of the world’s driest regions.

It is not at all surprising, given this context, that the UAE President Mohammed bin Zayed Al Nahyan openly refers to Iran as an “enemy”. Thus far, that rhetoric has not translated into direct military action.

While the Arab states have not launched offensive military operations against Iran as of this writing, the rhetoric from Arab leaders has indisputably shifted against Iran. In what could prove to be an epic miscalculation, Iran may very well end up expanding the roster of nations seeking to attack it from the US and Israel to include some or all of the Persian Gulf states.

Will that happen? We will not know until it does, but the probability of Arab attacks on Iran is at present increasing and not decreasing.

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We Do Not Know

Despite what the chattering class across corporate and alternative media might present, we do not know how this war ends.

We do not know if the regime will fall.

We do not know who would take over if the regime does fall.

We do not know how long the war will last.

We do not know how long before the price of oil comes back down to prewar levels.

We do not know if Saudi Arabia, the UAE, and other Arab states will join the war against Iran.

Will the United States “win” this war? In most military respects, it already has. No matter what else transpires, Iran’s military has been shattered. Their capacity to launch missiles and drones at neighboring countries has been significantly degraded. Their leadership has been thrown into chaos.

Iran was already suffering from a collapsing economy before this war began, and the devastation of this war is only going to amplify the economic distress.

Would Iran count the regime surviving despite weeks of relentless air assault as a “victory”? Certainly we should expect Iran’s propaganda machine to promote such a narrative. Regimes do not generally stay in power by admitting defeat.

If an unbowed and unrepentant theocratic regime, especially one dominated by the IRGC, is the long-term outcome of Operation Epic Fury, its military successes may be overshadowed by far less favorable geopolitical outcomes. Military victory and geopolitical defeat are not mutually exclusive, and war in Iran may yet prove a potent reminder of that.

Can Iranians opposed to the Islamic Republic regime unite and overthrow that government? Potentially, but until their opposition elements do united into a common cause they likely do not pose a significant threat to the regime. The Islamic Republic regime is unquestionably vulnerable at the moment, the most vulnerable it has been in decades, but it has not become clear the Iranian people are ready, willing, and able to exploit that vulnerability to effect regime change.

With or without a unified opposition, Iran’s problems from before the war are still around, only more so because of the war. Everything that pushed the Iranian people to protests back in January is still very much an issue now. In terms of crises and issues facing the regime, not much has actually changed even with the war, except that every crisis and issue has gotten worse by an order of magnitude at least.

We do not know how this war will end. Even so, already it is clear that when Operation Epic Fury does end, for Iran it will not be the end of the crisis. It will not even be the beginning of the end. At most, it will be the end of the beginning.

2026 will not be a kind year to the Islamic Republic.

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Total nonfarm payroll employment edged down by 92,000 in February, and the unemployment rate changed little at 4.4 percent, the U.S. Bureau of Labor Statistics reported today. Employment in health care decreased, reflecting strike activity. Employment in information and federal government continued to trend down.

There is quite a bit to unpack in this jobs report, and for the sake of clarity and concision I am going to focus on the jobs numbers themselves in this article. Later in the week I shall address data quality and other ramifications of the February jobs numbers separately.

One conclusion is clear: the jobs recession is still getting worse. It is not getting better.

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All Sectors Were Down

How fugly is the jobs report? Enough so that there is not one single sector that printed good results for February. All but finance posted job losses on the month, and even finance saw only marginal job gains.

The only reason the job gains in finance look at all good is because of how bad job losses in the sector have been over the past year.

Manufacturing gave up its January gains and then some.

Construction, likely battered by severe winter weather, surrendered 11,000 jobs.

Information posted its fourteenth consecutive month of job losses.

Trade, Transportation, and Utilities, as well as Leisure and Professional Services reversed from job growth in January to job loss in February.

Even Healthcare, which has carried the jobs report in several months, saw job losses in February.

Across the board, the private sector job news was bad.

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ADP Was Even Worse In Some Sectors

I have not often made side by side comparisons of the ADP and BLS jobs data, but it is worth noting that, since the start of 2025, ADP has reported relatively greater job loss in key sectors.

Manufacturing job loss from the start of 2025 was a half-percentage point worse in the ADP data set relative to the BLS data.

Trade, Transportation, and Utilities—a significant service providing sector—likewise printed 0.5pp more relative job loss in the ADP report.

Finance, the lone bright spot in the BLS jobs report, was 0.2pp worse in the ADP report.

Construction, Information, and Professional and Business Services saw somewhat less job loss on the ADP report.

Healthcare and Leisure actually saw marginally greater job gains on the ADP report.

While the ADP data posted some interesting divergences from the BLS data across 2025, broadly speaking the two reports show similar jobs trends across sectors—and most of those trends were negative in 2025.

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Unemployment Relapse

No matter how we look at the unemployment data, there was a clear relapse in February. Joblessness got demonstrably worse.

After posting two months of significant declines in the number of “officially” unemployed, February saw the official count surge by 203,000.

The number of persons technically not in the labor force but who want a job now also rose by a not-insignificant 136,000.

As a direct result of these twin growths in joblessness, both the “official” and the “real” unemployment rate rose by 0.1pp (I calculate the “real” unemployment rate by adding the number not in the labor force but who want a job now to both the size of the labor force and the number of unemployed workers and take a percentage from there.)

By every metric, joblessness moved in the wrong direction in February.

The grim reality driven home by this jobs report is that overall employment plateaued in 2025, and has dropped in the first two months of 2026.

Even when the employment level was more or less steady in 2025, the ratio of employed workers to the overall population dropped by 0.8pp.

The jobs recession which I called in 2024 and which began in 2023 has not gone away. In February, it became demonstrably worse.

America’s jobs markets turned toxic during the Biden years, but thus far President Trump has clearly failed to detoxify them.

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When Does It Get Better?

For all of President Trump’s rhetoric about America’s “Golden Age”, the February jobs report is clear on this much: the one group of Americans being left out of that “Golden Age” at present is the American worker.

Workers need work. Workers need jobs. America in February failed to provide those jobs.

Without jobs workers do not get a shot at higher wages—one has to have a wage first before one can aim for a higher wage.

Without jobs workers do not get opportunities to work more hours, thereby boosting the impact of higher hourly wages by increasing weekly earnings even more.

For all of the trade deals that have been signed, for all of the investment commitments that companies around the globe have made to President Trump, job growth is not happening in the United States at present. Job growth has not been happening for a number of years. The downward trend which began under Joe Biden has not been stopped by Donald Trump.

America needs that downward trend to stop. American needs the trend in jobs to be improving and getting better.

When will that downward trend stop? When will the trend get better?

Job growth is the single most effective way to ensure the greatest number of Americans have the greatest participation in the presumptive prosperity Trump touts with his “Golden Age” rhetoric.

America needs factories to start hiring more—and it isn’t.

America needs service producing companies to start hiring more—and it isn’t.

America needs to pull more people off the sidelines and back into the productive economy—and it isn’t.

We are now a full year into the second Trump Administration. President Trump has had a full year to implement his economic policies, and we have had a full year to assess their impacts.

Contrary to the TDS-inflected fears of Democrats and corporate media alike, President Trump’s economic policies have not completely crashed the economy. If Wall Street is any guide, some portions of the economy have done rather well. Inflation has not returned (although that may quickly change as the ramifications of Operation Epic Fury become clear).

What the Employment Situation Summary makes plain is that Main Street is still not doing well. Wall Street may be prospering, but Main Street is not. Main Street is still waiting for its “Golden Age” to arrive. Main Street is still asking when its economy will get better.

The hope is always that President Trump’s policies will yield benefits for everyone including Main Street. In the longer term, they still may, and I certainly hope they do.

In the meantime, Main Street is still waiting for real job growth. February’s Employment Situation Summary reminds us Main Street has yet to see any.

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Just going from 22,000 jobs to 63,000 jobs created during the month is undeniably a step in the right direction.

ADP’s Chief Economist, Nela Richardson, had her usual optimistic take on the data.

“We’ve seen an increase in hiring and pay gains remain solid, especially for job-stayers. But with hiring concentrated in only a few sectors, our data shows no widespread pay benefit from changing jobs. In fact, the pay premium for switching employers hit a record low in February.”

The numbers came in higher than expected, beating the Wall Street consensus by 13,00 jobs and demolishing the Trading Economics forecast.

With stronger than expected job growth for February, we should feel good about the data and look to tomorrow’s Employment Situation Summary with a bit of optimism—shouldn’t we?

We know the Trump Administration will. Wall Street may. Yet if last month illustrated anything about the data is that a healthy dose of skeptism is warranted. We should be skeptical about this month’s ADP data as well.

Last month, with its mass downward revisions, proved even the ADP data is not immune to the taint of Lou Costello Labor Math. Are this month’s revisions “normal”, or signs of bias and tainted data?

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As readers will recall, last month the ADP jobs report took the astounding step of revising its entire database down by approximately 2 million jobs, without any mention or documentation within the jobs report press release.

This month we can see just looking at the top-level numbers that there was no such mass revision in February.

However, the lack of a mass revision across the entire data set does not mean there were no revisions. If we zero in on the change in employment month on month, we see that the data did shift in January.

It turns out that job growth in January was only 11,000 jobs, according to ADP. As I noted yesterday shortly after the jobs data was published, these historical revisions work against the job growth reported by the headline data.

Much as with the BLS data, ADP revised its January estimate downward based on late data. Within the FAQ portion of the monthly press release, ADP states that this can happen sporadically.

How are prior-month revisions calculated in the ADP National Employment Report?

Employment estimates are based on weekly summaries of anonymized and aggregated ADP client activity. Employers pay individuals on different cadences, including weekly, biweekly, semi-monthly, or monthly. In any given month, a small number of clients might report no activity. These clients are excluded from NER estimates of employment change. In the subsequent month, if and when we receive any client data remaining from the prior month, that information is incorporated into the revision.

Data can always arrive late, and so it is unsurprising that there would be revisions to prior months. With the BLS Employment Situation Summary, there are always revisions to prior months.

As with the Employment Situation Summary, the full ADP press release quantifies the prior month’s revisions.

The January total number of jobs added was revised from 22,000 to 11,000.

What was shocking about the January report is that there was no quantification of the mass revision, or acknowledgement that it was backdated to the very beginning of the ADP data set.

The December total number of jobs added was revised from 41,000 to 37,000.

The January 2026 report reflects a scheduled annual revision of the ADP National Employment Report. The data series has been reweighted to match the Quarterly Census of Employment and Wages (QCEW) benchmark data through March 2025.

Beginning this month, in addition to the annual benchmark revision, the ADP National Employment Report also will reflect data from the most recent QCEW release.

That is a significant omission, as it can lead to a misapprehension of the magnitude of recent job growth. When revising a data set it is imperative that the revision be quantified, in order to adequately report the consequence of the revisions.

Because of that lack in the January report, the February report is giving a better treatment of the data.

That being said, job growth was still cut in half for January. As bad as the January ADP jobs report was initially, the revisions made it even worse.

Should we consider the revisions normal, or signs of bias? To determine that, we need to look at the data sector by sector.

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When we look at the sector by sector data, we see that not all sectors saw their numbers revised in January.

That has been a mixed blessing, as it means that Manufacturing, which has been shedding jobs for months, is still shedding jobs.

Construction and Leisure and Hospitality also saw no change in their January numbers.

Trade, Transportation, and Utilities, an important services sector, actually saw an upward revision, from 4,000 to 16,000 jobs.

Professional and Business Services, as well as Information, both of which shed quite a few jobs in 2025, also were revised upwards—meaning they lost fewer jobs.

Sectors which had downward revisions for January included Mining and Financial Services, which lost 1,000 jobs each.

By far the sector which had the largest downward revision for January was Healthcare, which was reduced by 24,000 jobs for January.

The Healthcare revisions are particularly noteworthy, as that sector has been where most job growth in the US has been concentrated.

Outside of the concentrated decline in healthcare jobs, however, the sector level revisions are fairly small and move in both directions. That tends to argue against any form of bias in the data, which would skew all the sectors in the same direction, either up or down.

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Is the ADP data tainted by Lou Costello Labor Math? No, it is not—at least, not for February.

While there were revisions to the January data, outside of Healthcare the magnitude of the revisions was relatively small—a few thousand jobs either up or down. That is not indicative of bias, but of normal sampling error.

This month’s revisions are distinctly different from the mass revision introduced (and poorly explained) for January. Lowering employment levels extending back to the very beginning of the data set is an extraordinary alteration to the data. Absent clear explanation for such a revision, it has to be viewed with suspicion.

The revisions we see in this month’s ADP jobs report are not like that. They are incremental. They move both up and down.

We should note, however, that the overall jobs number was revised down in January just as it was revised down in December, independent of the mass revision across the entire data set.. As with the Employment Situation Summary, when revisions are always in the same direction, that is a clear indication of bias in the data. What sets the ADP revisions apart from what we’ve seen in the BLS data is the magnitude of revisions. In the BLS data prior months’ revisions can wipe out an entire month’s jobs gain.

We should not expect the 63,000 jobs figure to stand. If the current patterns hold, we will see the February headline number reduced just as in December and January. If the headline number is revised down by 11,000 jobs, just as was done this month, the ADP report will have landed line with the Wall Street consensus.

Is the ADP data therefore more reliable than the BLS data? If we look just at the magnitude and distribution of prior month revisions, we can at least say the ADP data set shows greater consistency month to month.

As all the job reports are estimates, the total numbers are inherently just “best guesses”. When the data is consistent any trends which are observed—month on month rising job growth, for example—are going to be a more reliable indicator of movement within job markets in the US.

We need to remain skeptical of the numbers, and anticipate another round of downward revisions when the March data is released, but, going by the January revisions, the ADP data for February appears to be relatively “clean”.

In February, ADP held the Lou Costello Labor Math to a minimum.

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