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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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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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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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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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 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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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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The Producer Price Index for final demand increased 0.5 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 0.4 percent in December 2025 and 0.2 percent in November. (See table A.) On an unadjusted basis, the index for final demand rose 2.9 percent for the 12 months ended January 2026.

The January increase in prices for final demand can be traced to a 0.8-percent advance in the index for final demand services. In contrast, prices for final demand goods declined 0.3 percent.

Just as was the case for December, corporate media wasted no time in leaping to the ever-reliable “muh tariffs” narrative, this time by trying to actually parse the data.

Gas and food prices tumbled during the month; however, those decreases were countered by a sharp increase in “trade services,” a category that measures profit margins for wholesalers and retailers.

Trade services can be highly volatile on a monthly basis and economists have closely watched this category during the past year as it could serve as a signal for whether businesses are absorbing the higher costs US importers are paying for tariffs.

Alas for the Most Busted Name in Fake News, the ever-reliable “muh tariffs” is still ever-reliably wrong. Yes, prices are up, and yes there are even inflation signals in the PPI data. No, we cannot conclude from them that tariffs are to blame.

What can we conclude? Let us peel back the layers and find out!

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More “Muh Tariffs” Nonsense

As a rule, one must be wary of news media headlines. Of necessity, headlines are meant to attract attention—and that includes mine. The impulse to “spice up” the narrative in the headline can be compelling, and it is an impulse corporate media rarely tries to resist, as CNN’s headline for its PPI write up demonstrates.

As noted above, CNN pointed to “trade services” and pretended that made the case for tariffs being the culprit.

However, when even the more finance-oriented Bloomberg declines to accentuate tariffs, we have to question the accuracy of the “muh tariffs” narrative.

Buried rather farther down in the Bloomberg story, there is even the concession that tariffs likely are not the culprit.

And while tariffs have put some upward pressure on consumer prices, companies largely haven’t hiked prices as much as economists once feared. Data out earlier this month showed a key gauge of inflation was fairly mild in January, defying concerns of a bigger jump.

I will reiterate what I said last month on this topic: “It’s complicated”.

Ultimately, the TLDR on what is driving factory gate inflation is almost always going to be “it’s complicated”.

Tariffs certainly can be a factor in pushing up prices, and are always an inflationary pressure on prices. Geopolitical tensions over Greenland, Venezuela, China, Ukraine and Iran can also be inflationary pressures. Political and non-tariff trade disputes can likewise be inflationary pressures.

There are simply too many forces pushing prices both up and down to say “inflation is due to this” or “inflation is due to that.”

Hyperbole may be a natural tendency for headlines, but that also means headlines should be distrusted as a general rule. (And yes, that includes the ones I use here on All Facts Matter)

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PPI Is Printing Inflation Warnings

While skepticism over headlines is always warranted, the reality of the PPI data is that it is printing inflation warnings for January.

Although the headline factory gate inflation number actually declined year on year, from 3.0% to 2.9%, the core metric with food and energy left out actually rose.

Even month on month, the core inflation metric rose significantly higher than the headline figure for the second month in a row.

There is indisputably an inflation signal in the data.

However, that inflation signal is not across the board. For the second month in a row, food printed outright deflation.

Remarkably, so did energy.

This is remarkable because January was a month when market oil prices—a major and obvious factor in energy prices—generally rose.

No matter what else happens with factory gate prices overall, we should definitely anticipate future energy price inflation in the PPI simply so that the PPI can absorb the inflationary impulse from rising oil prices.

Moving into the core price elements, for the second month in a row goods prices printed outright deflation.

While we can point to this as a rebuttal to the “muh tariffs” narrative, we need to do so carefully, because when we unpack the deflating food and energy prices, goods prices actually rose significantly month on month.

Wait, comes the question, if goods prices less food and energy are rising, why wouldn’t we ascribe it to tariffs?

The answer is to remember what I said at the top: “It’s complicated”. Tariffs are an indisputable inflationary pressure for both consumer and factory gate prices, by they are by no means the only such pressure. Just because core goods prices rose does not allow us to conclude that tariffs are to blame.

One complicating factor is that service price inflation has also been heating up.

Remember, services are not tariffed. If service prices are rising we are looking at inflationary pressure besides tariffs.

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Not Every Price Rise Comes From Tariffs

A second criticism comes from the canard of pointing to “trade services” as a potential indicator of tariff-driven inflation.

The first problem with that comes when we look at the behavior of trade service prices against core goods prices. Straight away we see that trade services are themselves particularly volatile.

Moreover, trade services were in outright deflation in August and again in October and November. The Liberation Day tariffs were announced in April. If tariffs were the culprit for the rise in trade service prices, we should not have seen trade service price deflation during the summer—but we did.

Additionally, trade service prices have a history of surging even without tariffs, which is easily seen when we expand the timeline to cover the past two years.

If tariffs are signaled by rising trade service prices, what catalyzed the surge in trade service price inflation during the summer of 2024? Donald Trump’s tariffs were not even proposed policy at that point.

Trade service prices are signalling hotter inflation, but their historic volatility does not permit us to look at them and consider the “muh tariffs” narrative proven.

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Producer Price Inflation Is Not Consumer Price Inflation

The most important reason to discount the “muh tariffs” narrative on inflation is that, despite the signals from the PPI, consumer price inflation remains notable chiefly for its absence.

What I noted last month about the quality of the PPI inflation signal remains very much the case, and even more so when we add the January data.

While there was a correlation between year on year consumer price inflation and factory gate inflation for goods immediately after the COVID Pandemic Panic and during the 2022 hyperinflation cycle, after 2022 there has been more divergence, with consumer prices dipping into deflation year on year while producer prices stabilizing and then trending up.

In January, the Producer Price Index year on year deviated even more from the CPI for both durable and non-durable goods.

While the historical presumption has been that the Producer Price Index acts as a leading indicator for the Consumer Price Index, that presumption is challenged considerably by the post-COVID data, and in particular by the behavior of both indices after the 2022 hyperinflation cycle.

The unalterable reality of consumer prices is that if they are not rising, tariffs cannot be contributing to consumer price inflation. It is mathematically impossible for it to be otherwise.

The unalterable reality of both indices is that, year on year, while core producer price inflation has been rising, core consumer price inflation has not.

Even with the disruption in CPI data from the Silly Schumer Shutdown, we are still presented with data which completely contradicts the presumption that the PPI is a leading indicator for the CPI.

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Inflation, But Not From Tariffs

What we are seeing in factory gate prices is inflationary pressures which are quite demonstrably not being passed on to the customer.

There are two broad hypotheses we can propose for this phenomenon:

1. Suppliers are compelled to acknowledge that previous profit margins have included a measure of economic rents, which market conditions are forcing suppliers to now surrender by absorbing cost increases.

2. Suppliers are anticipating that the current inflationary pressures are actually transitory and will subside again. Maintaining current prices is therefore a defensive measure to preserve market share.

Neither scenario makes tariffs a principal driver of consumer price inflation. We cannot hypothesize that suppliers will view Trump’s tariffs as transitory because Trump’s tariffs from his first term were not transitory. One of the major criticisms of the recent Supreme Court ruling on the Liberation Day tariffs is that Joe Biden doubled down on Trump’s first term tariffs—hardly a rejection of the premise that Presidents can invoke tariffs.

This is why we must remember that every exploration of the contribution of specific inflationary pressures towards overall inflation is always going to be complicated. There is never a situation where a single inflationary pressure operates in isolation. The pressures which drive prices up and the pressures which drive prices down always are acting against each other.

No matter what data we examine, we are always compelled to recognize that the relationship between inflationary pressures and inflation is not a linear relationship but a differential one. Overall inflation for both producer and consumer prices is always going to be the resolution of all such pressures.

At present, even for producer prices, tariffs are just not a primary pressure pushing up prices. The data simply does not get us there.

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Most crucially for Federal Reserve watchers, the PCE Price Index rose year on year and month on month in December.

From the preceding month, the PCE price index for December 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 December increased 2.9 percent. Excluding food and energy, the PCE price index increased 3.0 percent from one year ago.

Corporate media, true to propagandistic form, seized on inflation’s rise, once more largely ignoring the underlying detail and the ramifications of that detail. Headline inflation rose, so naturally the corporate media headlines were that inflation rose.

Yet the price rises are not the real concern in the December report. There were also disquieting shifts in personal income and personal consumption, shifts which could signal not inflation, but deflation or stagflation.

The Personal Income and Outlays report does not sound any alarms on either inflation or deflation, but it does present a number of warning signals for both.

The report ends 2025 on a cautionary note, and opens 2026 with a return to skepticism rather than the surge of optimism we have seen recently.

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PCEPI Rises When CPI Fell

The PCE Price Index rose 2.9% year on year in December, and Core PCEPI rose 3%, the second consecutive year on year increase for both.

Intriguingly, headline PCEPI has been trending up since last spring, while Core PCEPI has been primarily fluctuating and flirting with 3% year on year.

The year on year increase is made significant in no small part because month on month both headline and Core PCEPI climbed significantly in December.

We do need to be somewhat circumspect regarding the December increase, because the PCEPI data has been presenting in recent months with greater volatility than the CPI data, a reversal of the historical norm.

The lack of CPI data for October and November further complicates comparison between the two inflation metrics. Still, even year on year the PCEPI data is diverging from the CPI data somewhat.

While headline CPI has cooled year on year since last summer, headline PCEPI has not.

The differential is too small to be significant on its own, but the deviation extends back into last fall, and so bears ongoing scrutiny. The deviation may prove to be just statistical noise, or it may be a harbinger of something more relevant.

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Food Price Inflation A Leading Contributor

There is no mystery where we get the rise in headline PCEPI for December. Tracking the CPI in December, food price inflation rose month on month.

After two months of food price deflation, the reversal is nothing if not unwelcome.

Energy price inflation, the other volatile element in headline PCEPI outside the core metric, eased in December.

This is unremarkable, as market energy prices trended down in December.

What is remarkable is that within the Core PCEPI, durable goods inflation surged, in a clear deviation from December’s CPI data, which saw durable goods in deflation.

Nondurable goods and services also printed higher in December. For the month the whole of Core PCEPI showed inflation heating up month on month.

That’s never a good sign.

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Rising Prices, Falling Consumption

However, against the inflationary signals within Core PCEPI we have contrarian movements within personal consumption expenditures themselves.

When the prices rises are taken into account, real personal consumption expenditures for the durable and nondurable goods actually fell in December.

This is not an inflationary signal but a stagflationary one. People purchased fewer things in December (which is ironic given one would expect the Christmas holiday to push real consumption of goods higher).

With real consumption declining, it is difficult to project goods prices inflating much further. If there is diminishing impetus to buy now, higher prices are only going to depress consumption further, which will in turn create a dampening effect on any other inflationary pressures that might be in play.

Another concerning signal is the continued excess of real consumption over real disposable personal income. For the sixth month in a row, real personal consumption expenditures rose more than real disposable personal income.

Consumption can only outpace income for so long before spending constraints emerge which limit consumption growth. Thus any future inflationary pressures are once again likely to be dampened by constrained consumption.

Most notably, however, is that real disposable income actually fell in December. Regardless of what wages and earnings have been doing in 2025, the amount of money people have to spend freely diminished in December.

The reality of disposable incomes in the US is that it plateaued last spring and has not grown hardly at all since.

Lack of real disposable income growth suggests that deflation is a far greater concern than inflation at present.

That concern is increased when we consider that within personal income increases in transfer payments outpaced employee compensation in December.

As a rule, the healthiest forms of personal income growth is in compensation and income generated directly from asset ownership. These represent actual additions to the overall economy, not merely shifting dollars around by government diktat. When transfer payments grow faster than compensation, the economy is becoming less productive overall. Should that trend continue the end result is deflation.

With the BEA reporting a slowing economy in the fourth quarter of 2025, we do well to pay attention to the deflation and stagflation signals that are emerging in the data.

The concern is not merely that the economy slowed in the fourth quarter. The growth trend since 2021 has been one of slower and slower growth for both nominal GDP and Real GDP.

Some of that decline was to be expected, as 2021 was a rebound year from the COVID Pandemic Panic. However, that trend has continued, and while Real GDP staged something of a growth recovery in late 2022 and 2023, since late 2023 Real GDP growth has been slowing down.

When GDP growth is already slowing, the significance of deflationary and stagflationary signals in the economy increases dramatically.

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Cause For Concern But Not Alarm—Yet

We should not look at the December PCEPI inflation data as a sign that inflation is heating up and that price instability is returning. While the price rises are a cause for concern, and while the deviation between PCEPI and CPI definitely warrants further observation, at present even core inflation per the PCEPI is not trending significantly up year on year. Even month on month there was not a sustained upward trend for either headline or core inflation in the PCEPI data in 2025.

The data does not support any narrative that inflation is about to heat up overall going forward.

We should look at the lack of growth in real disposable income as a warning sign that the US economy may be slipping into stagflation. While the data shows that wages and earnings grew relative to inflation in 2025, the amount of income people are able to spend freely has not. Slowing compensation growth in December certainly does not help.

Without expanding real disposable income, increases in real consumption are inherently constrained. People have to have money before they can spend money as a general rule.

If there are constraints to consumption growth the potential for future growth in the economy overall are likewise constrained. Consumption is a major portion of the US economy, and if consumption is not growing the economy is not growing.

The Personal Income and Outlays Report reads as a cautionary tale. On the one hand we have an unwelcome rise in inflation. On the other hand we have continued lack of increase in disposable income. A continuation of either going forward is a problem for the economy, and a continuation of both would be alarming.

The report is encouraging in that inflation’s rise has so far been incremental. While the report does not confirm that “winter is coming” for inflation, it does not wholly discredit that narrative either.

The Personal Income and Outlays Report does not close out 2025 on a high note. The report opens 2026 with more skepticism and quite a bit less optimism.

That will be frustrating for those who want their narratives to be either good or bad, up or down, optimistic or pessimistic. For everyone else, the report means we cannot say at present whether the economy is heading up or down.

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I completely agree with the legendary American humorist on this point. Having dealt with numbers and statistics all of my working life, I fully appreciate all the ways that statistics can be manipulated and even perverted to advance a particular narrative.

Thus we are obliged to treat with caution the White House’ typically Trumpian claim last week that real wages in the US rose by $1,400 in 2025, far surpassing Biden-era wage growth.

• Real average hourly earnings for all private-sector workers rose in January, up 1.2% over the past year; for middle- and lower-wage workers, gains were even stronger at 1.5%.

• In President Trump’s first year back in office, real earnings for all private-sector workers have outpaced inflation by nearly $1,400 — earning back some of the nearly $3,000 they lost under Biden.

  • Mining workers: +$2,400

  • Construction workers: +$2,100

  • Manufacturing workers: +$1,700

  • Goods producing workers: +1,700

If these numbers are accurate, they represent genuine wage gains and genuine improvement for American workers.

The key word, as always, is “if”.

Are they accurate? The answer is, frustratingly, “maybe, maybe not.”

Such is the dilemma when calculating “real” values from nominal economic data.

The data does show President Trump having positive impact on wages and earnings. The data also shows that success is not the entire story.

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“Real” Wages And Earnings

When we speak of “real” earnings, or “real” wages, we are adjusting nominal wages for the effects of inflation. With memories of the 2022 hyperinflation cycle still fresh in most people’s minds, it is intuitively obvious that inflation reduces apparent wage gains over any period of time. If consumer prices rise 2% but nominal wages rise only 1%, real wages actually decline.

This is the origin of the Democrats’ abortive “affordability” narrative.

However, as I regularly discuss, there are two “official” inflation metrics that the government uses: the Consumer Price Index (CPI) and the Personal Consumption Expenditures Price Index (PCEPI). The CPI is the index calculated monthly by the Bureau of Labor Statistics, while the PCEPI is maintained by the Bureau of Economic Analysis. Of the two, the PCEPI tends to be the more conservative figure, printing a lower overall inflation rate at the height of the 2022 hyperinflation cycle.

For obvious reasons, the Federal Reserve prefers the PCEPI as an inflation gauge. As the BEA is the agency which generally computes real wages and real GDP, it also favors the PCEPI.

However, if we use the CPI to calculate real wages and earnings, we will get different results, and we will get less attractive results.

Longtime readers may recall that I have been using the CPI to restate real wages for quite some time. The mathematics are fairly straightforward, and I discuss them here for those who are interested.

I use the CPI for calculating real wages because it tends to be the more “dismal” of the two inflation metrics, and thus overall yields the most conservative estimate of real wages and earnings. This is a deliberate choice on my part, as the accountant in me prefers the estimate be too low rather than too high.

Thus, while I will not challenge the White House numbers directly, I will offer a different computation of wage growth since 2021, using the monthly CPI numbers to calculate real hourly wages and real weekly earnings.

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Nominal Wages And Earnings

The raw data for this exercise is easily obtainable from the Federal Reserve Economic Data (FRED) service.

On the surface, nominal average wages and earnings in this country have appeared to grow at a fairly steady rate since 2021.

However, even within the nominal data there are a few data points that are worth noting:

• Between January 2025 and January 2026, nominal weekly earnings for goods producing jobs rose $65.56.

• Between January 2025 and January 2026, nominal weekly earnings for service providing jobs rose $46.73.

• Between January 2024 and January 2025, nominal weekly earnings for goods producing jobs rose $61.86.

• Between January 2024 and January 2025, nominal weekly earnings for service producing jobs rose $44.69

2025 is, of course, Donald Trump’s first year back in the Oval Office, while 2024 was Joe Biden’s final year. Thus, even on a nominal basis, President Trump’s first year has seen nominal wage growth greater than Joe Biden’s final year.

Two more nominal data points allow us to flesh out a Trump-Biden comparison on earnings:

• Between January 2021 and January 2025, nominal weekly earnings for goods producing jobs rose $231.38.

• Between January 2021 and January 2025, nominal weekly earnings for service producing jobs rose $166.45.

As that increase covers the entirety of the Biden era, that gives an average weekly earnings increase for the Biden years of $57.85 for goods producing jobs and $41.61 for service producing jobs.

President Trump’s first year performance on nominal earnings not only surpasses Biden’s final year, but also Biden’s average across all four years.

If we wanted merely to build a conclusive “Trump Beats Biden” narrative on worker paychecks, we could stop right there. President Trump’s first year economic policies have resulted in more money in worker paychecks then Biden’s final year economic policies as well as Biden’s economic policies across the whole of his Reign of Error.

However, when we compute the influence of inflation on wages and earnings, we see not only just how badly Biden’s policies hurt American workers, but also how President Trump’s policies have helped American workers recover.

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Real Hourly Wages (CPI Calculation)

Longtime readers will no doubt recall that declining real wages and subsequent wage stagnation has been a persistent criticism I leveled against the Biden Administration. The degree to which wage growth has been restored is one of the gauges I use to measure the success or failure of President Trump’s policies.

There is no gentle way to describe the Biden Administration’s track record on wages and earnings. It sucked massively.

Workers lost a significant portion of their paychecks to the 2022 hyperinflation cycle, and did not recover it during Biden’s term of office.

Again, a few data points suffice to illustrate the difference between Donald Trump and Joe Biden:

• Between January 2025 and January 2026, average real hourly wages for goods producing jobs rose $0.47.

• Between January 2025 and January 2026, average real hourly wages for service providing jobs rose $0.36.

• Between January 2021 and January 2025, average real hourly wages for goods producing jobs fell $0.23.

• Between January 2021 and January 2025, average real hourly wages for service producing jobs fell $0.45

Note that the decline under Biden includes both the initial wage crash during 2022 and the slow and demonstrably inadequate recovery afterwards.

Donald Trump’s policies are looking better and better.

When we consider weekly earnings since 2021, we see the same collapse and recovery.

The numbers for weekly earnings tell the same story as hourly wages for both Trump and Biden.

• Between January 2025 and January 2026, average real weekly earnings for goods producing jobs rose $24.84.

• Between January 2025 and January 2026, average real weekly earnings for service providing jobs rose $14.87.

• Between January 2021 and January 2025, average real weekly earnings for goods producing jobs fell $24.48.

• Between January 2021 and January 2025, average real weekly earnings for service producing jobs fell $41.91

One obvious victory lap for Donald Trump in these numbers: In one year his policies have allowed goods producing weekly earnings to fully recover to their pre-inflation real levels.

One obvious challenge for Donald Trump in these numbers: service providing weekly earnings have not fared nearly as well.

Has Donald Trump’s policies produced the wage gains claimed in the White House announcement? Not if we are calculating real earnings using the CPI. Multiplying the average weekly earnings increase for 2025 under Donald Trump by the 52 weeks in a year gives a weekly earnings increase of $1,291.65 for goods producing jobs and $773.34 for service providing jobs.

That increase is considerably less than the numbers touted by the White House, and the primary reason for the variance is the selection of inflation metric against which to calculate real wages and earnings.

This is not to say the White House is peddling a false claim. This is to say that context matters when considering such claims, and part of the context for the White House wage claims is that it is choosing the best calculations and not the worst. White House announcements being intrinsically political messaging, we should not be surprised at that, but we owe it to ourselves to remember it.

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Wages Are Not Earnings

What the White House announcement does not encompass is the degree to which wage growth and earnings growth have diverged since 2021.

While wages and weekly earnings for goods producing jobs have by now fully recovered from the 2022 hyperinflation cycle, they have done so at different paces.

While real weekly earnings have only just recovered to their January 2021 levels, real hourly wages reached that threshold around March.

Service providing earnings have lagged service providing hourly wages to an even greater degree.

Neither has fully recovered from the 2022 hyperinflation cycle, but real weekly earnings for service providing jobs have recovered only about half of what was lost in 2022.

There is no mystery for the differential. Average weekly hours have declined across the entire private sector, with the greatest declines coming in service providing jobs.

Increased hourly wages when working fewer hours have diminished impacts on the weekly paycheck.

Even with job growth people are overall working less, and that is a drag on weekly earnings growth across the private sector.

Nor does it help that goods producing employment declined beginning in late 2024.

However good the wage and earnings growth has been for goods providing jobs, that growth is being enjoyed by fewer workers. The lack of wage and earnings growth for service providing jobs is being endured by more workers.

These are nuances to the wages and earnings the White House announcement does not mention. While we should not expect the Trump White House to publish arguably negative statistics any more than we would have expected that from the Biden White House, we still owe it to ourselves to be cognizant of the negative data.

In some ways, that negative data contradicts the White House stance. Yes, there has been wage growth, but there has been less job growth than first recorded, and even within the job growth we have had people are still working less, which is hindering earnings growth.

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The Data Matters. The Narrative Does Not

The data not mentioned by the White House in its wages and earnings victory lap underscores the importance of looking at all the data, even the data which does not fit neatly in to a prevailing narrative.

The White House is not lying when they brag about earnings growth under President Trump. Even a conservative reading of the nominal wage and earnings data proves that President Trump’s policies have been met with better wage and earnings data than Joe Biden’s policies were. Even a conservative calculation of real wages and earnings proves President Trump’s policies have done better than Joe Biden’s policies.

The White House is shading the data by picking the more conservative inflation metric to build its wage and earnings claims—although one could just as easily claim I am shading the data by picking the more volatile inflation metric to build mine.

The White House is also not talking about the negative data which still lingers within the jobs data set. While the data is negative, it is still meaningful and still important.

That negative data reiterates the employment dimensions where the jobs recession is still very real and still ongoing. Not only has job growth been less than reported under both Biden and Trump, wage and earnings growth is also arguably less robust than the White House wants to present or even admit.

The wage and earnings growth during President Trump’s first year have been real and superior than any year under Joe Biden. The data is unequivocal on that point, and President Trump should take a victory lap for the success his policies have had with wages and earnings.

That superior wage and earnings growth is not the entire employment story, however, and while we should not ignore Trump’s clear successes, neither should we ignore those areas where success has yet to be seen. We need President Trump to succeed in those areas as well.

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The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.2 percent on a seasonally adjusted basis in January, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 2.4 percent before seasonal adjustment.

Consumer price inflation has not been heating up. Even drilling down through the data shows only marginal inflation increases month on month, and none so large as to signify a trend of rising inflation.

It would appear that winter really has come for inflation in the US economy.

Left unmentioned in the corporate media is the reality that continued disinflation means we must once again point out that President Trump’s tariffs are not pushing prices higher at present. Whatever inflationary pressure the tariffs represent is being more than offset by other deflationary pressures on prices.

This inflation report was good news. From the headline figure down through all the details, the January inflation report was simply good news.

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Wall Street Expected Higher Inflation

For Wall Street, the year on year inflation print was something of a surprise, although other projections and forecasts anticipated the continued disinflation.

Printing at 2.4% put the year on year inflation rate below the Wall Street consensus of 2.5% and right on line with the Trading Economics forecast.

The forecast was almost perfectly in line with the nowcast projection from the Cleveland Fed.

Wall Street’s initial reaction was positive on Friday, although afternoon selling muted the overall impact on equities.

Treasury yields had a far more emphatic response, with the 10-year yield accelerating its decline on the day.

Even CNN was obliged to concede that inflation had improved across the board in January.

Economists had forecast a 0.3% monthly increase, which would bring the annual rate to 2.5%, an expectedly cooler reading that benefited from “base effects,” or comparisons to last year when inflation was running higher.

For similar reasons, the core CPI gauge – a closely watched measurement of underlying inflation that excludes volatile food and energy prices – also saw its annual rate of inflation ease.

For its part, the Washington Post acknowledged easing prices for energy as well as for used cars and trucks, two significant consumer goods categories.

When even the reliably anti-Trump corporate media cannot find reason to carp and criticize the data, there can be no doubt that the data is reporting cooling inflation, which is always good news.

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Details Remained Good

There is no disputing the headline inflation numbers are good. Both headline and core inflation are continuing to trend down, year on year.

While core inflation did tick up month on month, it remains below summer’s level and is well below the month on month rate for January 2025.

In a promising replay of the December data, the data remains largely positive even as we drill down past the headline number.

Energy prices returned once more to their recurring theme of energy price deflation.

Even more encouraging was that, drilling into the energy commodities category, most energy prices are in outright deflation.

Food price inflation eased substantially, cooling from 0.6% month on month to 0.4%

Within core inflation, only services exhibited any significant inflation increase month on month, while durable goods printed deflation yet again and nondurable goods printed a 0.25% inflation increase.

Even Rent of Shelter, generally a trailing indicator on inflation, printed a slight cooling from December.

Even the forward looking Zillow Observed Rent Index shows month on month deflation for shelter.

The US economy does not have much going on in the way of inflation at the moment. The data is crystal clear about that. There is service price inflation and that is all.

This is a double win for President Trump. It is a clear win on the question of “affordability”, and it is yet another month where the inflation data rejects the premise that Trump’s tariffs are causing inflation.

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Still Tariffs, Still No Inflation

Corporate media and the usual cadre of TDS-infected “experts” are committed to pushing the premise that President Trump’s tariff and trade policies are driving prices up.

The tariff thesis’ latest problem is that even in areas where inflation has move up month on month—services and nondurable goods—year on year inflation has still cooled.

When the overall trend is disinflation, the clear conclusion to be drawn is that tariffs are not a dominant inflationary pressure pushing prices up.

This is further reinforced by the reality that retail sales in major categories of goods were largely unchanged in 2025.

For both the Advanced Retail Sales Estimate from the US Census and the follow-up Retail Sales Estimate, the overarching trend across most major goods categories was horizontal, with no significant increase or decrease over the year.

Even indexing the data reveals that only the Furniture category saw a decline in sales volume over 2025 in both the Advanced Estimate and the Retail Estimate.

Whatever other impacts President Trump’s tariffs might be having, the impact they are not having is diminishing retail sales.

No price increases and no retail sales diminution means no impact on consumer prices from tariffs. The data just does not allow for any other interpretation.

This lack of tariff impact may be one reason why Wall Street may be warming to the possibility of a federal funds rate cut next month. The shift is not large, and the release of the PCEPI data later this month may push the prediction trend the other way, but at present the pressure may be beginning to build for Jay “Too Late” Powell to trim the federal funds rate another 25bps.

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Inflation Is Stablizing

While consumer price inflation year on year is continuing to move slowly down, the broader trend both at the headline level and within much of the supporting consumer price detail is one of stabilization and a moderately dynamic equilibrium.

A broad aggregate metric such as consumer price inflation is never going to be completely static, nor is it particularly desirable that it be static. Markets must be fluid to function effectively, and that means there will always be some fluctuations up and down in consumer prices.

However, barring extraordinary shifts in money velocity or supply chain disruptions, we should expect to see consumer prices—and consumer price inflation—moving within a certain range of values. Despite that modicum of price volatility, prices are broadly stable if the long-term trend year on year or month on month inflation is horizontal.

While the Federal Reserve is still maintaining as its “holy grail” 2% inflation year on year, the data is accumulating that inflation is stabilizing at between 2.5% and 3% year on year. If that is indeed happening, the Fed’s own stated dual mandates say it should focus instead on maximizing employment, and that implies interest rate reductions.

Will the Fed acknowledge this at last and start to do the right thing? At present, that seems unlikely. Jay Powell seems determined to carry his unseemly and unprofessional political opposition to Donald Trump to the very end of his tenure in May (which cannot come too soon, given the incompetence he has displayed over the past eight years).

However, with even Wall Street acknowledging that inflation is not rising, the case for holding the line on interest rates simply does not exist, not any more. With market rates for Treasuries being bid down, Wall Street is making plain its desire for lower interest rates, and the one thing which surpasses Powell’s Trump Derangement Syndrome is his eagerness to bend the knee to Wall Street. That leaves hope for a federal funds rate cut in March.

The US economy has its share of problems still. At least for now, inflation is not one of them.

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Sadly, Breitbart has served up a telling example of this, with John Carney’s puff piece about how well labor markets are doing under Trump.

A viral statistic suggesting otherwise has drawn more than 600,000 views on X, creating a narrative of broad-based labor market collapse. But the data tells a different story.

No, it does not.

Labor market “collapse” is too strong a term, but the jobs recession is real and has been real since 2023. Arguing that the jobs recession is not real is either ignoring or misunderstanding the data, and is simply wrong.

It’s wrong when that argument appears in corporate media.

It’s wrong when that argument appears in alternative and independent media.

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John Carney might be hoping to make a silk purse out of a sow’s ear over the January job numbers, but data is clear: the jobs recession is not going away just yet, and employment is not improving overall.

We know from that detail and from the annual benchmarking excercise that job growth in the United States has been considerably softer than most media outlets have reported, to the tune of roughly one million jobs that were reported but which never actually existed.

That is an important nuance to remember about the revisions. The reductions to payroll levels do not signify jobs that were lost. These reductions signify jobs that never existed. Economic narratives predicated on the jobs data showing positive growth at or above expectations are being proven false.

It does not matter which media outlet carries a narrative of optimistic job growth. Every such narrative is false, rejected and debunked by the data.

Where Carney goes off the rails is in the way he tries to deconstruct the so-called “viral narrative.”

The confusion partly stems from how the viral narrative constructs its argument. Charts typically start with total nonfarm payrolls, which include government employment, then subtract a broad health-related category. The result can make a policy-driven reduction in federal headcount look like private-sector weakness. This statistical shortcut obscures what’s actually happening in the private economy.

However, when we explore the impact of the BLS benchmark revisions published in the January Employment Situation Summary, it is clear that private employment (i.e., not including government jobs) had much softer growth over the past two years than previously reported.

Moreover, when we do a sector by sector review, we see that Manufacturing and Information in particular were shedding jobs in 2025.

Glomming manufacturing in with other sectors that have better track records on job growth is committing the same methodological sin Carney calls out from the “viral narrative.”

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The data is unambiguous on this point: Private Education and Health Services was by far the dominant sector for job growth in January, and through most of 2025.

Within Private Education and Health Services, Healthcare and Social Assistance is by far the dominant sub-sector.

Breaking the sector down even further, we see that Ambulatory Health Care was the dominant job category for most of 2025.

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If we gather the data on an annual basis, we see that Private Education and Health Services has been the dominant sector since 2023.

Looking at the data annually also shows where the “viral narrative” likely originated—job growth since 2023 has been literally nonexistent outside of Education and Healthcare.

If we index the subsectors, we can get a sense of how their relative growth rates have evolved. Indexing the jobs data to January 2021, we see that the sector with the most relative growth is Leisure.

However, that same indexed presentation also shows that Leisure’s growth was largely in 2021 and 2022.

When we re-index the data to January, 2023, we see that the sector with the greatest relative growth rate over the past few years has been….wait for it…Private Education and Health Services.

Since January 2023, Private Education and Health Services employment has grown by 11.6%. The next best performing sector, Construction, grew by 4.7%—less than the growth rate of healthcare. Leisure is right behind Construction at 3.9%.

All other economic sectors have lost employment since January 2023.

The data flatly rejects Carney’s conclusion:

None of this means the job market is booming. Hiring has become more concentrated in a handful of service industries, particularly health care. Job openings have cooled. But the sweeping conclusion — that “everything outside health care is shrinking” — relies on mixing government job cuts into an “ex-healthcare” calculation and then presenting the result as a verdict on the private economy.

The “sweeping conclusion” that upsets John Carney is a more accurate depiction of what has happened in US labor markets since 2023 than Carney’s own reimagining of the data. Since 2023 most economic sectors are experiencing shrinking employment.

I will reiterate a point I made earlier: Imbalanced job growth is not a positive economic signal.

Imbalanced job growth is what the data shows unambiguously. Pretending that it doesn’t, or ignoring that it does, is either disingenuous or dishonest. Either way, pretending that the US economy does not have imbalanced job growth is simply wrong.

That fundamental dishonesty is compounded when Carney commits a methodological sin that corporate media has committed time and again when looking at the BLS’ companion labor market report, the Job Openings and Labor Turnover Summary: he focuses on job openings while disregarding net hiring.

Yes, the job openings numbers have been large since 2021, although they have been steadily declining since 2022.

However, no matter how many job openings are advertised, net hiring—total hiring less total separations—has never risen in response to that apparent labor demand. Regardless of why that is the case, there is no denying that is the case.

Quite the contrary, since mid-2021, net hiring has been on the decline in this country.

There is a subtle point that deserves emphasis here: net hiring began to decline roughly six months before the job openings began to decline. No matter how one describes the economic forces at play which produced that outcome, one fact is indisputable: the number of declared job openings created no hiring pressure, motivated no employer to add new hires.

Job openings that do not get filled provide zero economic benefit either to employer or employee. It is absurd to argue that job openings which do not lead to increased net hiring are a sign of economic and labor market health. If there is no economic benefit conferred there can be no sign of economic and labor market health.

Job openings are simply not economically relevant. Net hiring—actually putting people on payroll and taking them off payroll—is what is economically relevant.

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The data is clear and unmistakable: the United States has been in a jobs recession since at least late 2023.

The data is also clear and unmistakable that manufacturing—a sector I consider to be of particular economic importance—has been hurting since at least 2023.

Recession is not collapse, and we should not argue that a jobs recession is the same as a complete labor market collapse.

Yet even before US jobs markets were in a demonstrable recession, the data was unambiguous that labor markets were increasingly toxic. They were not “tight” and job growth was not “robust”.

Labor markets in the United States are not doing well, and have not done well for years.

Labor markets were struggling in the United States throughout the Biden Reign of Error. Let us be clear about that: Donald Trump bears little responsibility for the toxic state of job markets during those years (although the extent to which current labor conditions are fallout from the COVID Pandemic Panic does come back on him and not on Joe Biden).

Labor markets are struggling in the United States even now. While it is fairly said that Donald Trump did not cause labor markets to struggle in the US, it is also fairly said that Donald Trump’s economic policies have not resulted in dramatically improved labor markets during the first year of his second term.

It may very well be that Trump’s policies will produce major jobs gains in 2026, that restoring labor market health was simply a task that had to be done on a longer timeline than one might wish. I hope that is the case. I want Donald Trump’s economic policies to succeed not because I am a fan of Donald Trump, but because successful economic policies mean economic health and prosperity for the country.

At the present time, however, that success has not happened. The jobs recession has not ended. The job growth imbalance that favors healthcare over manufacturing continues to distort the US labor force. The data makes this absolutely clear.

If we are going to apprehend the state of the US economy accurately, we have to be willing to look at the realities conveyed by labor market data. We have to be willing to acknowledge that Donald Trump has not succeeded (yet).

John Carney is not willing to acknowledge that, at least not at the moment, and that has left him peddling fake news.

Breitbart deserves better. Breitbart’s readers deserve better.

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Total nonfarm payroll employment rose by 130,000 in January, 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, social assistance, and construction, while federal government and financial activities lost jobs

The BLS data dwarfed last week’s dismal ADP jobs print of only 22,000 jobs. Certainly those looking for an upbeat positive economic message need look no further, as a robust jobs report can only mean the jobs recession is at long last coming to an end. Right?

Only, Wall Street was not impressed. Equities sank on the opening bell, and finished the day with marginal declines in all three major indices.

Treasury yields reacted the same way as equities, with the yields jumping 10 basis points when the Employment Situation Summary was released.

Wall Street saw something in the jobs report that gave it serious pause. Almost certainly, that something included the annual benchmarking revisions, which made one million jobs vanish from the data.

Not only was 2025 less than spectacular for jobs creation, 2024 was even worse than previously realized.

That is an optimism-killing sort of jobs report. That the 130,000 jobs figure is itself almost certainly the result of Lou Costello Labor Math merely emphasizes how little good news the January jobs report possesses.

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Lou Costello Labor Math

It is trite and cliche to point out that when something sounds too good to be true, it probably is false. However, it is trite and cliche because it very often is reality, and the January Employment Situation Summary is no exception.

As long-time readers will perhaps recall, one quick thumbnail check on the reliability of the jobs data is to compare the ADP data, the Current Employment Statistics data, and the Current Population Survey data. As all three data sets are presumably measurements of the same underlying macro population, the data sets should converge.

When the data sets do not converge, that is a sign that bias is tainting one or more of the data sets, and that bias is what I have given the tongue-in-cheek description “Lou Costello Labor Math”, as that bias means the numbers are not going to add up.

While the data sets are closer to start 2026 than they were to start 2025, we do see an unusual set of divergences: private employment per the BLS Current Employment Statistics departs from the ADP data, and the Current Population Survey data departs from total nonfarm employment per the BLS Current Employment Statistics.

Another reason to be cautious about taking the numbers at face value is that the 130,000 jobs increase is entirely due to seasonal adjustment factors. In the raw unadjusted data, private sector jobs decreased by 2.2 million.

We should not be too shocked at the raw data, as large decreases have been the norm for the January jobs report for the past several years.

However, these large decreases are a reminder that January is inherently a problematic month for the jobs report, and a robust report that beats expectations is always to be taken with a large grain of salt.

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One Million Jobs Gone

With the final revisions as part of the annual benchmarking process that occurs each January in the BLS data, one million of the jobs initially reported by the Bureau during the year were simply erased from the data set.

Even more disconcerting is that the revisions in each and every month for 2025 were negative. There was not one single month where the BLS underestimated job growth. In every month of 2025 the BLS overestimated job growth.

When the data consistently skews too high or too low, that is an unequivocal sign of bias, and that by itself is conclusive proof that the jobs data is tainted with bias. Once again, the very thing that President Trump was derided in the corporate media for asserting last summer—that the jobs numbers fudged and phony—stands conclusively proven.

My reaction to the annual benchmarking revisions is simply “I told you so.” Having analyzed all the ways the BLS jobs data frequently does not add up for going on four years, seeing the latest confirmation of bias and data taint is a victory lap I am just egotistical enough to take!

Yet the benchmarking revisions covered more than just 2025 data. Jobs numbers for 2024 were impacted as well.

In accordance with annual practice, the establishment survey data released today have been benchmarked to reflect comprehensive counts of payroll jobs for March 2025. These counts are derived principally from the Quarterly Census of Employment and Wages (QCEW), which counts jobs covered by the Unemployment Insurance (UI) tax system. The benchmark process results in revisions to not seasonally adjusted data from April 2024 forward. Seasonally adjusted data from January 2021 forward are subject to revision. In addition, data for some series prior to 2021, both seasonally adjusted and unadjusted, incorporate other revisions.

The end result is a downward revision in nearly every month for the past two years:

Job growth in the United States has been even softer than has been previously reported.

Did Wall Street look at the revisions and have something of a WTF moment yesterday? Certainly that is an easy and obvious inference to draw from the data. Something demonstrably spooked equities yesterday, and the revisions demonstrably qualify as “spooky”.

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Sector Data Still Weak

Within the seasonally adjusted data, 130,000 jobs is a robust number, but it is a skewed number. Most economic sectors did not show robust job growth.

While manufacturing did finally achieve a positive jobs print, at 5,000 jobs the increase is almost nonexistent against 12 prior months of persistent job loss.

Construction did noticeably better at 33,000 jobs.

Finance and Information both continued to hemorrhage jobs.

Health and Education, Professional and Business Services, and Leisure all showed positive job growth.

Indeed, without Health and Education job growth, every Employment Situation Summary report over the past few months would have been negative.

As good as the headline 130,000 jobs figure looks, the details behind that figure show it is concentrated entirely in the Health and Education sector.

Imbalanced job growth is not a positive economic signal.

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Joblessness Improved, Earnings Did Not

Two numbers that did show a welcome improvement: the Unemployment Level and the number not in the labor force who want a job now.

The decline in both numbers produced noticeable improvement in both the official and the real unemployment rate (the “real” rate incorporates both the unemployment level and the number not in the labor force who want a job now).

We are still seeing an increase in joblessness relative to April 2023, when joblessness began rising in the US, but the trend has flattened significantly.

That is a welcome movement in a good direction.

What is not welcome is that wages and earnings have still not caught up to inflation after the 2022 hyperinflation cycle.

When we index hourly wages, weekly earnings, and the consumer price index to January of 2021, we see that, while wages are tantalizingly close to crossing over the inflation index, at which point wages will have matched price rises since 2021, weekly earnings still lags across all industries.

The differential is the decline in the average number of hours worked per week since 2021, a trend which has bottomed out but not yet reversed.

To engineer a true recovery from the ongoing jobs recession, one of the metrics that needs to move back up again is the average weekly hours. More hours worked mean larger paychecks across all wage rates.

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Great Headline, Lousy Detail

It would be pure speculation to ascribe a specific factor to Wall Street’s blase reaction to the jobs report. However, once again the report presents a very attractive headline number with lousy details behind it. Which details caught Wall Street’s attention? Perhaps all of them did.

We don’t need to know which number took the wind out of Wall Street’s sails. We know that equities had a down day.

We know that Treasuries matched equities’ lack of enthusiasm.

There is no doubt Wall Street saw something in the jobs report it didn’t like. When we scrutinize the detail within the report, we see quite a bit not to like.

We know from that detail and from the annual benchmarking excercise that job growth in the United States has been considerably softer than most media outlets have reported, to the tune of roughly one million jobs that were reported but which never actually existed.

That is an important nuance to remember about the revisions. The reductions to payroll levels do not signify jobs that were lost. These reductions signify jobs that never existed. Economic narratives predicated on the jobs data showing positive growth at or above expectations are being proven false.

Coupled with jobs that never existed is the sobering reality that weekly earnings growth is proving to be slower than corporate media wants to acknowledge. Hourly wages are close to recapturing all economic ground lost during the 2022 hyperinflation cycle, but weekly earnings still have a significant gap to close.

As nice as the headline number looks, the January jobs report does nothing to alter the overall jobs outlook in the US. We are still in a jobs recession. Job growth has not been great over the past two years. Earnings growth continues to lag and is still well below where it needs to be to overcome the effects of the hyperinflation cycle.

Looking at the detail within the jobs report, the most remarkable aspect of Wall Street’s reaction was that it was not more negative than it was. There are enough warning signs in the report to overcome even the most optimistic and enthusiastic of the “animal spirits” long lionized in financial markets

The January Employment Situation Summary, despite the robust headline number, paints a jobs picture that is as gloomy as what ADP presented last week. The only reason we are not saying the Employment Situation Summary shows the jobs recession getting worse is because the report reminds us that we have already had the “worse”.

Last week we saw signs that Wall Street is clearly looking ahead with optimism that the economy is going to improve greatly in 2026.

Yesterday we saw reminders that optimism does not change data, but data can change optimism.

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Is President Trump delivering on Agenda 47? Is he failing to do so?

The frustrating answer to all of these questions is “Maybe.”

That answer is frustrating because there are data points to support both narrative arcs.

We have jobs data which support a thesis that the jobs recession is getting worse, which is not a narrative of either economic or Trumpian success.

We have inflation data which support a thesis that the Liberation Day tariffs have not engendered renewed consumer price inflation.

We have manufacturing survey data which could suggest a turnaround in manufacturing is underway.

We have stock market data which chart Wall Street enthusiasm for the economy.

We have stock sell-off data surrounding Big Tech which could confirm the existence of a stock bubble in artificial intelligence as well as the bursting of that bubble.

All of these narratives have solid factual support. These are not corporate media fables, but arguably viable economic narratives.

All of these narratives suggest the economy may be reaching a turning point. Will the economy turn up or will it turn down?

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Schizoid Wall Street Stories

We are compelled to ask such questions because even Wall Street is presenting divergent and even schizoid stories regarding the latest convolutions within financial markets.

Most notable in this regard has been Big Tech darling Amazon’s abrupt shedding of 9% of its market cap last Friday, as it led the way in a $1 Trillion stock market route of Big Tech stocks.

Amazon, Alphabet, Microsoft and Meta reported about $120 billion in capital expenditures in the fourth quarter alone. That figure could exceed more than $660 billion this year, the Financial Times reported, which is higher than the gross domestic product of countries like the United Arab Emirates, Singapore and Israel.

Wall Street has responded differently to the companies’ spending plans, cheering Meta and Alphabet’s forecasts, while punishing Amazon and Microsoft.

Amazon, Microsoft, Nvidia, Meta, Google and Oracle collectively shed more than $1 trillion from their valuations over the past week, according to FactSet data.

At the same time, the Dow Jones closed above 50,000 for the first time ever.

The Dow Jones Industrial Average advanced 1,206.95 points, or 2.47%, closing at 50,115.67. Friday marked the first time the Dow exceeded the 50,000 level. The S&P 500 jumped 1.97% and ended at 6,932.30, while the Nasdaq Composite advanced 2.18% to 23,031.21. With those moves, the S&P 500 climbed back into the green for 2026.

Even with Friday’s pop, the S&P 500 posted a 0.1% decline for the week, while the Nasdaq fell 1.8% on the week. The 30-stock Dow rose 2.5% week to date, benefiting from some rotation into some economically cyclical stocks even as the overall market was weighed down by tech selling.

Elsewhere, speculation floated on Friday that the Artificial Intelligence stock market “bubble” had both been confirmed and potentially burst.

The immediate spark for the Friday sell-off was the Amazon fourth-quarter earnings report. The e-commerce giant projected that its capital expenditures would reach $200 billion in 2026. CNBC reported that Amazon’s Capex figure was $50 billion higher than expected, and the stock market reacted accordingly.

Speaking to CNBC, GAM Investments’ investment director Paul Markham explained why AI would affect these companies on the stock market.

“Questions over the extent of capex [capital expenditures] as a result of LLM build-outs, the eventual return on that, and the fear of eventual over-expansion of capacity will be persistent,” Markham told CNBC.

These were all stories which posted to various media outlets on Friday (February 6, 2026). On the same day we have reporting that Big Tech is crashing because of the AI bubble bursting and that equities overall are soaring to new highs.

How can both narratives occupy the same logical or even evidentiary space?

This is one moment when the underlying data does not show a clear trend.

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Stocks Moving Up And Down

There is a psychological significance that Wall Street as well as most media attaches to the Dow Jones Industrial Average crossing a 10K threshold. As it is the oldest stock market index in the United States (as well as the world), its movements up and down have long been seen as charting the growth of equity markets overall.

Thus even Presidents feel obliged to comment when the Dow crosses into new heights. President Trump was certainly no exception when the Dow pushed through 50,000.

While the Dow is the oldest index of US stocks, it is not the only one—and other leading indices did not print outcomes quite as optimistic as the Dow.

Both the S&P 500 and the NASDAQ Composite indices closed Friday down on the week.

While all three indices showed the same broad movement trends, the Dow was fortunate enough last week to have lost the least, leaving it up on the week even as the NASDAQ Composite gained the most on Friday.

The NASDAQ’s gain is itself somewhat counterintuitive, as Amazon, Google, and NVidia—all part of the AI oligopoly—trade on the NASDAQ exchange, with Oracle among the few trading on the New York Stock Exchange.

Last week we were thus presented with a pardoxical movement of major stocks such as Amazon moving down, even as the broader indices moved up.

While this is not impossible, over the longer timelines, individual stock movements are far more likely to reflect the broader index movements even in times when individual gains outpace broad index gains. We see this exemplified in Oracle’s historical price movements vs the Dow since 2017.

Oracle’s recent movements contrary to the broader stock market trends are decidedly anomalous, as are Amazon’s and even Google’s to a degree.

These contrarian movements among major stocks force us to qualify any presumed economic signal Wall Street might be sending by moving the Dow to a record close. With the Dow up on the week and the S&P 500 and NASDAQ down on the week, market optimism is far from untrammeled.

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Jobs Recession Is Still A Thing

The immediate contrast to last week’s apparent burst of Wall Street somewhat guarded optimism is naturally the data which shows the jobs recession in this country getting steadily worse.

Wall Street’s heady movements on Friday do not alter the employment situation printed in ADP’s latest National Employment Report, which showed unequivocally the jobs recession has been getting worse.

Yet it was scarcely a week prior to the ADP report that we had to consider the possibility that the jobs recession might at long last be coming to an end.

Ironically, right after that we saw both initial and continuing claims move sharply up again, confounding the optimistic narrative on jobs.

At the same time, executive placement firm Challenger, Gray, and Christmas announced that January, 2026 was one of the worst layoff months in years, and the worst hiring month on record.

January’s total is the highest for the month since 2009, when 241,749 job cuts were announced. It is the highest monthly total since October 2025, when 153,074 cuts were recorded.

“Generally, we see a high number of job cuts in the first quarter, but this is a high total for January. It means most of these plans were set at the end of 2025, signaling employers are less-than-optimistic about the outlook for 2026,” said Andy Challenger, workplace expert and chief revenue officer for Challenger, Gray & Christmas.