The May PPI report presents the latest indicator that not only is inflation rising in this country, but also that it is likely to continue to rise for at least a few months more.

At a minimum, the risks of a fresh hyperinflation cycle are growing, given that producer price inflation rose significantly in May.

The Producer Price Index for final demand rose 1.1 percent in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 1.1 percent in April and 0.7 percent in March. (See table A.) On an unadjusted basis, the index for final demand increased 6.5 percent for the 12 months ended in May, the largest 12-month rise since moving up 7.4 percent in November 2022.

Not only was the 6.5% increase the largest year on year increase since the 2022 hyperinflation cycle, it was also above Wall Street’s projections (although it printed below the Trading Economics forecast).

Of course, there is no real mystery behind the inflation surge: the immediate cause is the disruption of Persian Gulf oil flows by Iran’s illegal closure of the Strait of Hormuz. While the cause is known, however, the ultimate consequence is much less certain.

If the Strait remains closed for a number of months, oil prices are projected to rise much higher, injecting 1970s-style stagflation into virtually all the world’s economies.

If there is a peace deal with Iran and a reopening of the Strait, Persian Gulf oil flows might begin to recover, and stagflation might be avoided.

The key word in both scenarios: “if”. The Producer Price Index is telling us that more inflation and possibly stagflation is on the way. It is not telling us just yet how bad either one will be.

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The Month To Month Rise Was Unexpected

Wall Street and corporate media were caught off guard not by the rise in producer price inflation year on year, which printed just 0.1pp above projection, but by the month on month gain of 1.1%.

Wall Street had been expecting a month on month rise of 0.7%.

Clearly, Wall Street was disappointed.

The miss was large enough that CNBC found that to be the most notable aspect of the PPI report itself.

The producer price index, a measure of final demand costs, increased a seasonally adjusted 1.1% on the month, putting the 12-month wholesale inflation rate at 6.5%. Economists surveyed by Dow Jones had been looking for a monthly move of 0.7%.

CNN was similarly impressed by the month on month figure.

To their credit, corporate media remained largely factual in their reporting of the PPI, a departure from their gaslighting and foolishness over the CPI report a day earlier.

A long-held presumption with some historical validity is that the Producer Price Index gives visibility into what consumer price inflation is going to do over the next few months. A larger-than-expected rise in the PPI to 6.5% year on year indicates that consumer price inflation itself is highly likely to rise even more from 4.2% year on year over the summer at least.

How much more inflation are we likely to see? The data is far less clear on that point.

Headline PPI Inflation, Core PPI Disinflation

In a repeat of the May CPI print, the month on month inflation figure for headline PPI increased slightly, while the month on month figure for core PPI decreased.

Even the year on year print showed a different trend for the core figure than the headline figure.

Core PPI showed disinflation month on month, and almost no change year on year.

While headline inflation did rise month on month, we should also note that the increase was marginal. When we look at the Producer Price Index itself, we see the headline PPI increasing April to May in very close to linear fashion, but core PPI slowing noticeably.

Indeed core PPI and headline PPI have been diverging since January, and the spread between the two indices is larger now than it has been since President Trump took office in January 2025.

The signature difference between the headline and core data, of course, is the inclusion of energy data in the headline index, and the exclusion of it from the core index.

Arguably, we are seeing headline inflation continuing as it has been for the past few months, but core inflation continuing print slower and lower numbers each month.

Is that a forecast for more energy price inflation but with very little contagion affect? That is certainly one interpretation, and a plausible one.

No Surprise Here: More Energy Price Inflation

That energy price inflation increased within the PPI is hardly surprising.

Somewhat surprising, however, was the continued deflation for unprocessed fuel.

Meanwhile, processed fuels felt some price pressure and moved up.

Even more surprising is that retail fuel costs declined in May.

This is in line with the behavior of benchmark oil prices, which, as I noticed in discussing the CPI report, also declined in May.

Yet if oil prices declined, and retail fuel prices declined, what is pushing energy prices up?

Goods Prices Once Again Driven By Energy

Goods prices rose substantially in May, pushed up to 2.8% month on month.

However, just as with the CPI print, there’s no mystery as to the cause—energy price inflation. Putting goods and energy side by side makes that self-evident.

If we strip food and energy prices out from goods prices, we see a much smaller increase.

Just as with the CPI, the PPI is signaling inflation for energy goods, but not for other types of goods. The potentials of a contagion effect, where inflation spreads throughout the economy, do not appear to be on the horizon just yet.

Food Price Inflation Coming?

We should note that food price inflation itself did rise somewhat, although the primary increase within the PPI has been due to energy prices.

The lack of food price inflation may not last, however. Nitrogenous fertilizer prices have been rising since early 2025.

While month on month May’s increase was not as large as April’s, we are still watching fertilizer become more and more expensive over time.

Fertilizer is essential to high crop yields, obviously. If fertilizer prices increase enough to impact fertilizer usage in agriculture, we can reasonably expect food prices to rise some time thereafter, as harvests come in.

Rising nitrogenous fertilizer prices indicates that at least some food price inflation will begin to show up in the not too distant future. It might not be a whole lot but some food price inflation is coming.

Intermediate Demand Rising

The one ominous data within the Producer Price Index Summary remains the intermediate demand data set.

Producer price inflation for Stage 1 Intermediate Demand in particular has been rising steadily since last fall. Stages 2 and 3 have been right behind.

This is producer price inflation within the supply chain. Rising inflation within Intermediate Demand indicates that goods which are used to produce other goods are becoming more costly. Eventually, these inflationary price pressures have to result in higher prices for items.

Rising inflation within Intermediate Demand is a forecast that goods prices are poised to increase. They may not increase next month or the month after, but increased costs of inputs eventually will result in higher prices for various items.

Will It Be Stagflation?

The Producer Price Index Summary is telling us that there will be quite a bit more inflation, and specifically energy price inflation. Consumer price inflation is not done rising.

Will it simply be inflation, perhaps hyperinflation? Will it be stagflation?

The PPI is not going to answer that for us, because it can’t. To answer that question we have to look outside the data, at the underlying drivers of that data.

It is already well established that the catalyst for recent increases in both producer price and consumer price inflation has been the disruption of Persian Gulf oil flows. That disruption is ongoing, as IMF Portwatch data on oil volumes moving through the Strait shows.

Despite the loss of some 20% of global oil supply, oil prices have stabilized and even moved down slightly since the start of the “ceasefire” around April 13.

Arguably, this decline in benchmark crude oil prices is due in part to the releases by multiple nations from their strategic petroleum reserves. We can see, for example, that US oil inventories, both commercial and the SPR, have dropped near lows last seen during and after the 2022 hyperinflation cycle.

At the same time, China has reduced its imports of oil to a 10-year low.

Some of China’s import reductions were inevitable; a large portion of China’s oil imports come from the Persian Gulf and are now cut off. What is notable, however, is that China is not replacing Persian Gulf oil imports with imports from other regions. Instead, China is leveraging its own internal oil reserves to satiate its demand for oil.

The world’s biggest crude importer has leaned on export curbs, refinery run cuts and drawdowns from its massive inventories to cope with the impact of the loss of most Persian Gulf barrels. This has helped ease pressure on global prices, with analysts estimating China’s imports could remain subdued for months to come.

In terms of physical oil volumes, the global economy has managed to replace Persian Gulf oil with reserves held around the world. That immediately begs a simple question: when will those reserves be exhausted?

Some assessments indicate the answer is “soon”, as reserves reach floor thresholds which limit or prevent further releases.

America’s releases have brought relief beyond its shores. Many SPR barrels have made their way from salt caverns in Texas and Louisiana, through commodity traders to buyers in Europe, Asia and Latin America. Yet most analysts expect the pace of deliveries to slow in the coming weeks, from 1.4m to below 1m b/d. Pressure is dropping in the caverns, which risk damage if it gets too low. Bayou Choctaw, the smallest site, is nearly depleted, says Kevin Book of ClearView Energy Partners, a consultancy; others cannot pump more fast enough because of limited pipeline capacity. And the entire SPR has a statutory floor of 150m barrels, just 90m barrels below the level at the end of the current release.

Strategic reserves are finite quantities of stored oil by definition. Once they are depleted they are gone. When the world is no longer able to replace Persian Gulf oil with reserves, if the Strait is still closed and Persian Gulf oil flows are still blocked, the resulting oil supply shock will both drive up oil prices and compel destruction of oil demand.

As I have discussed at length previously, this is a stagflation scenario.

When prices rise because of an abrupt drop in supply—a supply shock, in other words—price stabilization will only be achieved when demand drops to align with the diminished supply.

Organically, the price increases achieve this demand destruction by driving marginal consumers and marginal consumption out of the marketplace. Central bank interest rate manipulations seek to achieve similar results by constraining and restricting consumption and demand by raising the cost of capital. Regardless of how the demand destruction is achieved, demand destruction is necessary to bring physical supply and physical demand back into equilibrium.

Note that when demand is reduced, an economy slips into recession.

Bringing this back to the May Producer Price Index, is the data signalling inflation or stagflation? Given the overall economic and geopolitical backdrop of ongoing war with Iran and continued closure of the Strait of Hormuz, the prognosis leans heavily towards stagflation.

This could change. As of this writing, President Trump is touting a deal that has presumably been reached with the Khamenei regime in Tehran. Current reporting is that the deal includes reopening the Strait.

If the Strait reopens, much of the stagflation scenario can potentially be averted. It will take time for oil flows to return to normal, and depending on what has happened to Persian Gulf oil production—in particular how many wells have been shut in—some production may not come back for a period of months or even years.

That would be an inflation scenario. Prices would rise in the short term, stabilize, and potentially even come down in the long term.

If the Strait does not reopen, the stagflation scenario is simply a matter of time before oil reserves are depleted and oil prices start rising.

The May Producer Price Index Summary is telling us that higher prices will come throughout the summer, that at least some inflation is already “baked in” to the economy.

Whether that inflation turns into stagflation depends entirely on whether there is peace with Iran and a reopening of the Strait of Hormuz.

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We need to remember that when discussing the May Consumer Price Index Summary, because while corporate media speaks in almost reflexively pearl-clutching terms of inflation “jumping”, the data tells a different story.

The all items index rose 4.2 percent for the 12 months ending May, after rising 3.8 percent for the 12 months ending April. The all items less food and energy index rose 2.9 percent over the year, following a 2.8-percent increase over the 12 months ending April. The energy index increased 23.5 percent for the 12 months ending May. The food index increased 3.1 percent over the last year.

At year on year inflation of 4.2%, the May CPI print was right in line with Wall Street projections, and just slightly above the Trading Economics forecast of 4.0%.

At 4.2%, the CPI print also came out exactly where the Cleveland Fed’s inflation nowcast projected.

4.2% year on year is quite a bit more inflation than what we had in February, before the start of Operation Epic Fury and Iran’s illegal response of closing the Strait of Hormuz.

However, we must also remember that year on year inflation for April was 3.8%. For March it was 3.3%, and for February it was 2.4%.

In other words, the big “jump” in consumer price inflation happened in March, and we are actually seeing disinflation since then, meaning inflation increased by less in May than in April, and less in April than in March. The energy price shock is, for the moment, proving to be a good deal less shocking than originally anticipated.

The blunt reality is that corporate media is once again peddling a narrative untethered from the facts. Either they are lying (again) or they do not know how to read the data, but inflation did not “jump” in May. That happened in March.

I leave the reader to decide how much of the media’s gaslighting is from malice and how much is from simple stupidity.

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Corporate Media IS Gaslighting

We only have to look at the headlines corporate media outlets are using to describe the May inflation report to see the narrative they wish to advance.

There is the New York Times getting the data exactly wrong:

CNN, still the most busted name in Fake News, decided to be equally factually challenged about oil prices (oil prices came down in May).

Even Bloomberg chose a headline that was somewhat to the left of accurate.

Gasoline prices did rise significantly in May, but the increase was nowhere near the surge we saw in March.

Consumer price inflation rose in May, and rose significantly. The data does confirm that much.

What the data does not confirm is the presentation of inflation rising at an increasing rate. That did not happen in May. Overall, consumer price inflation rose at a slower rate. Inflation decelerated. Inflation did not accelerate in May.

When inflation rises at a slower rate, that is called “disinflation”. That is what we have in the May report.

All Rates Of Change Matter

As anyone familiar with a dictionary can quickly verify, “accelerate” means to go faster. When we look at the year on year inflation graph for the Consumer Price Index, do we see evidence of acceleration? No. We do not.

When a graph bends down even a little, that means the rate of change has decreased, and close inspection of the data confirms what the eye can see plainly looking at the graph: from March to April to May it bends down.

At 4.167% in May, year on year inflation rose 0.388pp from April’s 3.779%, which represented a 0.493pp rise from March’s 3.286%.

In order for inflation to have accelerated (or “jumped” or “surged”) in May, the change from April would have had to have been greater than the 0.493pp from March to April. As the change from April to May was less than the change from March to April, what the data shows is inflation rising more slowly in May than in April.

We can see this even if we just look at the raw index graph for both headline and core CPI.

Just the fact that both graphs bend down moving from March 2026 to April 2026 to May 2026 is itself absolute proof that inflation slowed in May. It did not slow by much, but what it absolutely did not do is rise faster.

Even when we look at the month on month chart, we see less of headline and core inflation in May than in April.

This is not to say that inflation did not rise significantly in May. It did. Because inflation rose in May, the “Real Misery Index”—consumer price inflation plus real unemployment (including those persons not in the labor force but who want a job now)—also increased.

We must also recognize that, with the May inflation print, inflation is once again outpacing earnings even for the higher paying goods producing jobs.

We cannot say the May inflation report is good. Consumer price inflation rose 4.2% in May, and that is not at all good.

It also rose less in May than in April.

When inflation was printing north of 9%, such disinflation was of great interest to corporate media. The reader is left to draw their own conclusions why corporate media is not interested in such disinflation now (*cough* “Trump!” *cough*).

Energy Price Inflation Almost Unchanged

We still have energy price inflation in May. What we do not have is considerably more energy price inflation in May than in April. 3.80% to 3.88% is not considerably more inflation month on month, particularly for energy.

Even with the components of the energy index, we have more disinflation than outright inflation.

Fuel oil and diesel dropped a full percentage point month on month, from 4.3% to 3.3%. Electricity dropped from 2.1% month on month to 0.6% month on month. Piped gas slipped into outright deflation in May, printing at negative 0.6%.

Gasoline did increase in May, rising 7% month on month, which is a significant increase over April’s 5.4% month on month. That is not a price movement shared by other energy index components.

We still have significant energy price inflation, and gasoline is a significant factor in that inflation. But overall we simply do not have more energy price inflation in May than in April. We have energy price disinflation in May. That should make a difference in how we view the data.

One reason why energy price inflation was not worse in May: Oil prices were lower at the end of May than at the beginning.

Remember how CNN said oil prices “jumped”? I think they meant to say “dropped”.

Actually, they probably did mean to say “jumped”, but the correct word would have been “dropped”, although that would have not made for nearly as gripping a headline.

Food Price Inflation Cooled, Durables Dropped

Food price inflation also did not jump in May, but cooled, from 0.5% month on month to .16%

May food price inflation month on month was actually the third lowest food price inflation print since the start of President Trump’s second term.

Durable goods printed their second consecutive month of outright deflation month on month.

It is rather difficult to credibly speak of inflation surging when the data is printing deflation.

Even nondurable goods printed disinflation month on month, from 1.4% in April to 1.2% in May.

“Aha!” I hear you shout excitedly, “1.2% is higher than it was all last year!”

That is true. For the past three months nondurable goods price inflation have been considerably above where was throughout 2025.

However….

Nondurable goods includes energy and fuel, and when we put the nondurable goods and energy indices side by side, it is immediately clear from where literally all nondurable goods price inflation month on month comes.

If nondurable goods overall showed disinflation, and energy showed marginal inflation, printing well above the nondurable goods index overall, then we most likely have nondurable goods price deflation for everything except energy.

Your Mileage Will Vary, And So Will Inflation Rates

While headline inflation year on year is a sizeable number, when we look at the components of that inflation, we see that energy is by far the only category showing significant energy price inflation.

We see that if we index the components of consumer price inflation to January 2021.

Durable goods have been in a long-term deflation trend, and even nondurable goods were largely treading water in May.

Even if we bring the index forward to January 2025, we still do not see significant inflation outside of energy.

When we pause to consider that much of the rise in nondurables is because of energy, it immediately becomes clear that we are not seeing any substantial inflation at all except for energy.

We know why we are seeing energy price inflation. The data indicates we are not seeing much inflation anywhere else.

To blithely speak of inflation “jumping” when the data shows the reality to be far more nuanced is stupidity at best, malice at worst, and gaslighting regardless. The reality is that there is some inflation beyond energy, but the bulk of May’s consumer price inflation print is energy, almost to the exclusion of everything else.

This Is Not The Stagflation Shock We Feared (Not Yet)

We should not pretend that a headline consumer price inflation rate of 4.2% year on year is a good inflation print. It isn’t.

Headline inflation rose in May, rising not quite as much as it rose in April.

Yet virtually all inflation components showed disinflation for May, rising by less than they did in April. Without energy price inflation, we might have even seen more outright deflation than we did.

Nor should we pretend that the energy price shock is not real. It is extremely real, and very likely will have some very real consequences.

We should also not lose sight of the fact that the war with Iran is ongoing, that the Strait of Hormuz is still illegally closed, and that Iran has roiled energy markets by closing off the Strait.

The forces which injected a price and supply dislocation in global oil markets, thus producing a spike in consumer price inflation here in the United States, are still present. Those forces may even be getting worse.

If (when?) the buffering effects of large scale strategic petroleum reserve releases is exhausted, and if the Strait of Hormuz remains blocked, we could very easily see another energy price shock even greater than the one we saw in March. We might even see a contagion effect as inflation moves beyond energy prices and into multiple supply chains and output channels. What China has been seeing for the past couple of months we could be seeing in the US economy within a month or two.

The disruption of global oil supplies as a result of Iran illegally closing the Strait of Hormuz and shutting off 20% of the world’s oil flows is an unequivocal stagflation force and will, if it is not buffered and marginalized, have impacts which will reverberate through the US economy.

That disruption is threatening or producing stagflation in virtually every economy on earth. That disruption has not yet produced significant stagflation in the United States.

Perhaps that is because the United States is reaping significant benefit from strategic petroleum reserve releases. Perhaps that is because the United States economy is proving to have greater strength and resilience than we might have been tempted to conclude.

Regardless of the reason, the reality is that we are not seeing any destabilizing price surges outside of energy prices, at least not yet.

That could change. If the closure of the Strait of Hormuz continues for long enough, it very likely will change. Depending on what we see in producer price inflation for May (remember, the PPI is a leading indicator for the CPI), we may see destabilizing price surges outside of energy by July or August.

We are are not seeing those destabilizing price surges outside of energy in the May Consumer Price Index Summary. Energy price inflation is up, and that is pushing headline inflation higher. That is the sum total of the inflation we are seeing.

Even at that, the inflation we are seeing in May is noticeably less than what we saw in April. The inflation we saw in April was noticeably less than what we saw in March. The energy price shock was at its most shocking in March, two months ago.

That is what the Consumer Price Index data plainly shows, but that is not what corporate media is telling you.

Corporate media is feeding up headlines that say inflation is accelerating rather than decelerating. Corporate media is feeding up narratives that say prices surged more in May than in March. Corporate media is feeding up stories on inflation that are simply not accurate, and in some instances are demonstrably not true.

Consumer price inflation for May was definitely not good. 4.2% headline inflation year on year qualifies qualifies as “bad”.

Corporate media gaslighting on the actual state of consumer price inflation for May is proving to be even worse. Again.

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For nearly three years, the labor market has looked weaker than the headline numbers suggested. Now we have a string of jobs reports indicating the reverse is now true.

Most recently we had the May ADP National Employment Report indicating the US economy is shifting from jobs recession to jobs recovery. That was a marked improvement over the April Employment Situation Summary, which indicated the jobs recession is showing signs of ending, but there are several stagflation indicators on the horizon.

Now comes the May Employment Situation Summary, which makes a very strong case for declaring a jobs recovery underway.

Total nonfarm payroll employment increased by 172,000 in May, and the unemployment rate was unchanged at 4.3 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in leisure and hospitality, local government, and health care. Employment in financial activities declined.

This was not merely a strong jobs report. Total nonfarm payroll employment printed at double Wall Street’s projections, and nearly 70% above the more optimistic Trading Economics Forecast.

It is not a perfect jobs report, and we should not look for a perfect jobs report. Even so, the May jobs report carries much of what I have said would indicate a jobs recovery:

Job growth was still broadly based (although not as broad as April’s).

Wage growth does not appear to have lost ground to inflation (yet—we won’t have the May Consumer Price Index data until later this week).

The overall employment level rose for the first time in months.

There are still caveats. Real unemployment did rise slightly, although the increase in the number of individuals not in the labor force who want a job now was very nearly offset by the decrease in official U-3 unemployment.

Yet even when we drill down into the details of the May jobs report, the data points more towards jobs recovery than jobs recession.

Is a jobs recovery underway? The data has been suggesting that for some time, now, and it is increasingly difficult to deny.

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Lou Costello Labor Math?

As always, we begin by assessing the extent to which the jobs numbers are reliable. We must always take the data with a grain of salt, in part because we know there will be revisions.

We also have to reconcile the data from the two independent surveys within the Employment Situation Summary: The Current Population Survey (Household Survey) and the Current Employment Statistics (Establishment Survey).

In recent months, the Household Survey’s Employment Level has diverged substantially from the Establishment Survey All Employees data, suggesting the evils of Lou Costello Labor Math are lurking beneath the surface of the jobs report. Yet the May movements for both data sets were strikingly similar, with both showing job growth.

One month of synchronized movements does not mean the taint of Lou Costello Labor Math has been completely banished from the jobs data, but it does give an additional degree of confidence in the May data.

Even more remarkable are the revisions to the March and April data sets. The revisions were not just positive, they were extremely positive (emphasis mine).

The change in total nonfarm payroll employment for March was revised up by 29,000, from +185,000 to +214,000, and the change for April was revised up by 64,000, from +115,000 to +179,000. With these revisions, employment in March and April combined is 93,000 higher than previously reported.

We are presented with an additional 93,000 jobs for 2026 than we have had reported previously. To put that in perspective, the largest job growth number for 2025 was the April 2025 jobs report, which had a revised figure of 108,000 jobs. The revisions on the May 2026 report is on par with receiving an entire extra month of job growth.

Even more significantly, those revisions mean that the revised job totals for 2026 to date are 66,000 jobs higher than the initial reports.

Time is making the BLS data look better and not worse. We have not seen this for several years, and it is a welcome change.

Are the jobs numbers completely trustworthy? The answer is always going to be “of course not,” but between the two surveys showing similar job growth trends and the revisions trending positive rather than negative, we have reasons to be more optimistic about the May jobs data than has historically been the case.

We still need to take the data with a grain of salt, but this month’s grain is quite a bit smaller than it has been.

That bodes well for a jobs recovery narrative.

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Broad Job Growth, Especially In Goods Producing Jobs

A key indicator of a jobs recovery is that the job growth itself is fairly broad, encompassing most job sectors. The broader the job growth more indicative it is of broad increases in labor demand, which in turn drives real wage growth, which in turn powers real consumption growth and real economic growth.

While more sectors reported job loss in May than in April, job growth for May was still fairly broadly based, and broadly based for the third month in a row.

When job growth is thus both broad and deep speaking of a jobs recession quickly loses credibility.

This is one aspect of the job revisions that is especially significant. When we examined the April jobs report, job growth was not nearly as broadly based as April is printing now.

The April revisions in particular resulted in a much healthier jobs growth outlook.

Particularly encouraging is that the past three months have seen job growth across the three main goods producing sectors: Mining, Construction, and Manufacturing.

Given the 2025 had been a bloodbath for Manufacturing jobs, with Construction and Mining jobs scarcely any better, there is no denying that the Employment Situation Summary has been showing a decided trend reversal for goods producing job growth.

As I have said multiple times before, Manufacturing job growth is key to President Trump realizing his Agenda 47 objective of making the United States a manufacturing superpower, the 2026 jobs data shows we may be finally seeing the Manufacturing jobs growth needed for that goal to eventually be met.

While job growth across goods producing sectors was positive, job growth in service jobs was heavily concentrated in Healthcare and Leisure.

Healthcare has been a mainstay of job growth in this country since before the start of the second Trump Administration, and it is continuing to be a mainstay of job growth.

Leisure has been somewhat weaker in job growth over the past two years, but it has been getting stronger. This is why we look for broad job growth as a sign of jobs recovery—we want to see additional sectors pick up employment momentum without pulling it away from other sectors.

Of the three service sectors which lost jobs, Finance and Information have been losing jobs for months.

May is simply the latest in a long downward trend of job loss for both sectors.

The third sector which lost jobs was Trade, Transportation, and Utilities (TTU).

TTU jobs had been declining throughout 2025, although 2026 has been showing signs of a reversal there as well. Whether the marginal loss of TTU jobs in May marks the end of sector-level strengthening is not something we will be able to see for a couple of months yet.

The final major service sector, Professional and Business Services, is something of a cautionary note, for although the job growth is still positive, the level of growth has been diminishing in recent months.

Is the sector about to slip back into the negative, where it was for most of 2025? The trend certainly suggests that it could.

While job growth is far from perfect across the board, most job sectors are showing job growth not just for May but for most if not all of 2026 to date.

That definitely bodes well for a jobs recovery narrative.

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Joblessness Falling? Or Rising Still?

One part of the jobs recovery narrative that is still not certain is whether joblessness is rising or falling in this country.

The unemployment data from the Household Survey is a little contradictory on this point.

The official U-3 Unemployment Level declined 66,000 in May, but the overall number of real unemployed (official unemployment count plus the number of individuals not in the labor force but who want a job now) increased by 76,000. The net increase in joblessness was 10,000, which amounts to less than a 0.01pp increase in the real unemployment rate.

To make sure the unemployment waters are even muddier, we have growing evidence of a trend reversal since November of last year, with both official and real unemployment rates declining, even though the longer term trend since 2023 is still that of rising joblessness.

We see the same divergent long-term and near-term trends across the alternative “official” unemployment data.

Has a trend reversal taken place, such that joblessness is now on the decline in this country?

The evidence of that is accumulating, and that evidence augurs very well for a jobs recovery narrative.

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Employment Level Rose In May

Amplifying the improvement in the unemployment data is the increase in overall employment per the Household Survey.

The Employment Level had been declining in this country (which immediately challenges other job growth narratives), but in May it printed an increase of 149,000 workers.

One month does not make for a trend reversal, but with the Employment Level well below where it was when President Trump took office, any sign of improvement is going to be welcome. If the Establishment Survey figures of job growth withstand scrutiny, we should expect to see the Employment level trending up again in the near future.

Naturally, the Employment-Population Ratio also increased in May, and was likewise a welcome change from a steady rate of decline.

With any luck, the marginal increases for both numbers will continue. Rising employment levels and a sustained but increasing Employment-Population Ratio would be an extremely prominent pair of jobs recovery signals.

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Wage Growth Still Not Quite There

Nominally, wages rose across all job sectors in May. Whether wages rose enough to keep pace with resurgent inflation remains an open question for May.

While wage growth has done better in recent years, most sectors still have not seen enough wage growth to overcome the income reduction effects of the 2022 hyperinflation cycle. Goods producing jobs did largely recover from the 2022 cycle, but consumer price inflation’s recent uptick as a result of Iran illegally closing the Strait of Hormuz is threatening could pose another setback.

Wage growth will be a problematic data point for some time, as there have been only three job sectors where weekly earning have overcome the effects of the 2022 hyperinflation cycle: Leisure, Professional Services, and Construction.

Of those, only Leisure has printed strong enough wage growth to plausibly weather currently resurgent inflation. The wage recovery within Construction and Professional Services is marginal enough that any significant increase in consumer price inflation will eliminate those sectors’ real wage gains.

While oil prices have moderated as of late, we should continue to anticipate ongoing energy price inflation and a still-reverberating energy price shock.

Depending on whether inflation prints hotter or cooler for May will determine whether wages kept pace with current inflation or lost ground to rising inflation.

But for the energy price shock and resulting energy price inflation, wage growth in this country arguably would look much better relative to inflation than is does at present. Of course, we do have energy price inflation and that does diminish real wage growth overall.

Even so, until we see the May consumer price index data, we do not see inflation having discernible impact on real wages—not yet.

Wage growth provides the weakest and most problematic support for a jobs recovery narrative. Perhaps the most balanced assessment of the wage data within the jobs report is that May wage growth does not undermine a jobs recovery narrative, even if it does not necessarily provide clear support for that narrative.

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Stagflation Signals Status?

With the ceasefire between the US and Iran having technically “held” since mid-April, the status quo in the Persian Gulf has not changed much.

Iran still has illegally closed the Strait of Hormuz. The US is still blockading Iranian shipping.

As of May 31, tanker traffic through the Strait is still virtually nil.

Overall cargo volumes are equally nonexistent.

Because the Strait is still virtually completely closed, all the stagflation pressures we have seen for the past couple of months are still present.

In particular, oil production in the Persian Gulf has plummeted.

Only the United Arab Emirates has managed to regain any of its lost oil production.

The major industrial economies of the world have so far been able to buffer the resultant supply shock with releases from strategic petroleum reserves.

If the current drawdown trend continues, there is a point in the near future when total global observed oil inventories, including strategic reserves, will no longer be able to buffer the supply shock. When that happens, oil and energy prices are going to move sharply higher.

Currently, energy prices have been moderating, with oil prices trending down from their earlier peaks.

When the buffering of strategic reserve releases is exhausted, this moderating trend will cease. Oil prices will move sharply higher, carrying other commodities prices higher (as they have already done). Global stagflation is largely baked in without a quick peace deal, and even then we might see some of this.

While the price and supply shock side of the stagflation scenario is almost sure to happen, given the lack of progress on peace talks, we have to also remember that stagflation is the collision of inflationary price shocks with the deflationary forces present in a weak or underperforming economy.

If job growth is strengthening in this country, if the economy is therefore growing more or less strongly, then the stagflationary impact of the price and supply shock in energy is reduced in direct proportion to the growth.

Stagflation requires a weak or underperforming economy. Strong job growth would mean a strong and potentially overperforming economy.

If the job growth reported in the Employment Situation Summary over the past few months continues for the next two to three months, when the next price and supply shock does hit the US economy—which most prevailing forecast anticipate in the next one to three months—the US economy may be in a stronger position to withstand that sort of body blow.

The stagflation signals are not going away, nor are they even really diminishing, but the strengthening job markets raise hope that the ultimate stagflation impact arising from the disruption of Persian Gulf oil flows will be proportionally muted.

The best way to avoid 1970s-style stagflation in the US is for there to be an actual jobs recovery over at least the next few months.

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No Question: May Is A Good Jobs Report

There is no disputing that the May Employment Situation Summary is a good jobs report.

There is also no disputing that the May ADP National Employment Report is a good jobs report.

The April JOLTS report is more problematic, but it also points to there being at least some job growth in April.

Over the past few months, the jobs reports have reported steadily improving outcomes. We are seeing more and more job growth, and we are seeing it in more and more job sectors.

There is no denying that is what a jobs recovery should look like.

If we can be certain the trends of the past few months will be the trends of the next few months, there would be no question that we were in the midst of a jobs recovery.

That uncertainty about the future is the only restraint on calling a jobs recovery is now underway. If job growth suddenly stops next month, or reverses in a big way as it did in February, the jobs recovery narrative would sound immediately foolish.

If job growth continues, not calling the jobs recovery would also sound immediately foolish.

Is a jobs recovery underway? For now at least, yes, it is. Since March, we are seeing improving job growth numbers. Since March, the revisions to the jobs report have been positive. Wages are growing, and the only reason they might not keep pace with consumer price inflation is the resurgence of consumer price inflation.

We should be mindful that this is a very young jobs recovery. It likely will not take much to snuff out this recovery effort, and the price and supply shocks likely heading towards the US economy over the next couple of months definitely fit within the concept of “much”.

For now, we have a jobs recovery. After nearly three years, we are seeing meaningful job growth in the US economy. We cannot say how long this recovery will last, but it is appropriate to celebrate the jobs recovery while it does last.

The May Employment Situation Summary is a good jobs report which shows a jobs recovery is underway. 2026 is so far a good year for job growth.

That’s good news. We should enjoy it while it lasts (because it may not last).

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The May ADP National Employment Report presents a case for a nascent jobs recovery that is difficult to ignore, with a jobs print showing 122,000 jobs were created last month.

It certainly is difficult to challenge ADP Chief Economist Dr. Nela Richardson’s assessment of the report.

Hiring was more broad-based in May than we’ve seen in the last few years. The labor market continues to show sustained momentum going into the summer hiring season.

The report surpassed Wall Street’s increasingly optimistic consensus projection, and completely blew pass the Trading Economics forecast.

Another encouraging note: ADP’s revisions to the April report amounted to a relatively minor reduction, from 109,000 jobs to 105,000 jobs—still a strong headline jobs figure.

Is the jobs recession really over? At the very least we must acknowledge the increasing number of signals that it is.

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Across The Board Growth

What makes the ADP report compelling is not merely that there was broad based jobs growth, but that there is a growing trend of broad-based jobs growth. May was the third consecutive month that nearly all jobs sectors showed at least some employment increase.

Aside from the March bloodbath in Trade, Transportation, and Utilities, the ADP report has shown job growth across most every sector.

Equally encouraging is that job growth has been spreading across all employer sizes.

In March, job growth was almost exclusively concentrated in small establishments. In May, while small establishments still led the way, larger firms are also adding jobs.

Just on these two metrics alone we can say that the ADP report is a strong signal that a jobs recovery is underway, with jobs growth that is both broad and increasingly deep.

Stepping back and looking at a longer horizon, the ADP data also suggests that the pace of job growth has been trending up in recent months.

After the expected rebound in employment in 2021 following the 2020 COVID Pandemic Panic, job growth slowed markedly especially in 2023 and 2024. The first few months of 2025 even showed some job loss. Since last summer, however, the ADP data has been charting consistent job growth, and larger monthly jobs numbers since earlier this year.

There is no denying that this is what the beginnings of a jobs recovery looks like.

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Manufacturing Job Growth…Yay!

As longtime readers are aware, the manufacturing sector is one to which I pay particular attention when assessing jobs numbers. Not only do manufacturing jobs generally pay more, but manufacturing employment is essential for President Trump to realize his Agenda 47 goal of making the United States a “manufacturing superpower.”

The past few years have not been kind for manufacturing. It is particularly good news, therefore, that the May report showed the first positive jobs print for manufacturing in two years.

Construction job growth continued, although it showed further cooling from April.

Among goods producing jobs, only Natural Resources and Mining showed job loss.

Among service providing jobs, only the Information sector showed job loss.

Professional and Business Services, Trade, Transportation, and Utilities, Healthcare, Finance, and Leisure all showed some level of job growth.

Not only did all but two sectors print job growth in May, but even sectors that have been shedding jobs in recent months are now picking up jobs. Information is the lone standout in this regard, as it had been showing job loss more often than not since the start of 2025.

Service providing jobs grew substantially more than goods producing jobs. Perhaps more significantly, service providing jobs have been on the upswing in recent months, even as goods producing job growth has cooled somewhat.

I have said before that sustained broad job growth was needed before we could say with confidence that the jobs recession has ended. The May ADP jobs report printed sustained broad job growth.

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Unemployment Trending Downward

When we look outside the ADP report to the weekly unemployment claims data, in both initial and continuing claims we are seeing a downward trend that points to steady improvement in the unemployment outlook.

We do need to apply some caveats to the unemployment data. Not only has the claims data moved up in recent weeks, but the longer-term unemployment picture from the BLS Employment Situation Summary is still showing rising joblessness dating back to mid-2023.

The ADP report is printing strong jobs growth and is clearly signalling a jobs recovery is underway, but that recovery is unquestionably in its early stages, and it is still extremely fragile. A negative jobs Employment Situation Summary report, or even an underperforming one, would be a serious challenge to a jobs recovery narrative.

The May Employment Situation Summary comes out on Friday. Whether the BLS data confirms or rebuts the ADP data will go a long way towards solidifying or weakening the case for a jobs recovery in this country.

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PMI Data Still Invites Skepticism

As noted the other day, the PMI data from the Institute for Supply Management is both a case for a jobs recovery and a case against it.

The case for is that both the Manufacturing PMI data and the Services PMI data have been printing expansion since the first of the year.

The case against is that both Manufacturing Employment and Services Employment have been printing contraction.

How can industry surveys be printing job growth on the one hand and employment contraction on the other? If we presume pristine data sets then the answer is clearly that they cannot—one data set or the other must be incorrect.

However, this is also where we have to remember that we do not have pristine data sets, and even ADP has in the past succumbed to the temptations of fudged Lou Costello Labor Math to present rosier metrics than were really warranted.

The ADP data may be highly inaccurate. The ISM PMI data may be highly inaccurate. Both data sets may be inaccurate to varying degrees.

If the job growth trends reported by ADP are real, then in due course we should expect to see the ISM PMI data on employment move into expansion territory. Similarly, if the Manufacturing and Services PMI metrics themselves continue to print expansion, we should expect to see that industry growth percolate down into employment growth.

The longer the PMI employment data shows contraction, the more we should be cautious about accepting the ADP jobs data at face value.

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The ADP Report Is A Strong Report

Despite the caveats and precautions, there is no denying that the ADP Employment Report is a strong jobs report. There is no denying that it is the latest in a string of increasingly stronger jobs reports.

On its own, the ADP data is signalling that a jobs recovery is starting to take hold in this country.

Will the BLS Employment Situation Summary due out on Friday show the same strong jobs numbers? Wall Street is guardedly optimistic, with a consensus projection of “only” 85,000 private sector jobs.

In March and April the projections were conservative, and the BLS job prints blew right past them. Will we see the same again for May?

That is, of course, the hope. Labor markets have languished in this country for far too long as it is, and a turnaround is absolutely overdue. A strong jobs report from the BLS, coming on the heels of a strong ADP report, with both reports the latest in a series of strong jobs reports, would be the strongest signal yet that a jobs recovery is finally taking hold in this country, and that it has been for the past few months.

We have more than a few reasons to believe that hope is not in vain. We still have a few reasons to remain somewhat skeptical.

Is a jobs recovery underway in this country? The ADP jobs report is the latest indication that it is.

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The number of job openings increased to 7.6 million in April, the U.S. Bureau of Labor Statistics reported today. Over the month, hires and total separations decreased to 5.1 million and 5.0 million, respectively. Within separations, both quits (3.0 million) and layoffs and discharges (1.7 million) were little changed.

The 7.6 million job openings figure easily surpassed Wall Street’s projection as well as the Trading Economics forecast, both of which were 6.8 million.

The better than expected job openings number excited corporate media outlets, as it put the number of available job openings above the reported number of unemployed individuals.

Yet even just delving into to the levels of hires and separations, it is clear that the optimism corporate media infers from the job openings numbers does not extend very far. Employers and employees alike are still showing uncertainty about the current economic state of affairs.

Still, several sectors showed job growth in the JOLTS report, even when they reported job loss in the Employment Situation Summary.

Is the April JOLTS report a good jobs report? Maddeningly, the answer is ultimately “it depends”. For some sectors it is a good report. For others...not so much.

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Hiring And Separations Are Down

While the Bureau of Labor Statistics still found a way to inject its favorite jobs formulation of “little changed”, the devil in the detail is that overall hiring fell in April, with overall separations falling even more.

The corporate media assessment of these numbers is to impute a lack of overall confidence among both employers and employees.

The department’s Job Openings and Labor Turnover Survey (JOLTS) showed that layoffs fell but so did the number of Americans quitting their jobs - a sign of confidence in their prospects. And the report’s measure of gross hiring also dropped in April, suggesting that companies remain reluctant to add new workers even as they hold on to the ones they have.

Despite the apparent unease, employers presumably are also showing signs of optimism, given that reported job openings surged to a three-year high.

The jump in job openings certainly appears to be an optimistic signal, given that it pushed job openings above the number of unemployed.

The jump in openings put the available jobs above the total of unemployed workers. The rate of openings compared to the size of the labor force rose 0.4 percentage point to 4.6%.

As the top level data shows, however, the surge in job openings was met with a drop in overall net hiring.

Still, the net hiring trend among private employers was still positive, and following the same movements as the Employment Situation Summary’s All Employees data set.

While still positive on the month, indicating real job growth, that the net hiring data cooled in April is a subtle reminder that jobs markets in the US have quite a ways to go before a recovery can be said to be in full swing.

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Manufacturing Jobs Rose

One encouraging note within the jobs report is that net hiring rose in the manufacturing sector.

Manufacturing is one sector where the JOLTS data diverged from the Employment Situation Summary, which showed job loss in manufacturing for April.

Construction was another sector where the JOLTS data was markedly better than the ESS data.

Net hiring in construction strengthened in April, even though the ESS data showed job growth in construction cooling.

Trade, Transportation, and Utilities, a mainstay of service providing jobs, printed especially strong net hiring numbers.

Other service sectors showed net hiring cooling off, although professional and business services did show improvement over March, when net hiring was negative.

Leisure showed a marked cooling in net hiring, printing almost no job growth in April.

Healthcare, which has been the major source of jobs since the start of 2025, had the second weakest net hiring numbers over that time frame.

In what might be an encouraging note for the May ESS report due out on Friday, in most sectors net hiring outpaced job growth per the ESS, a notable shift from the March data.

While overall private-sector net hiring was in line with private-sector job growth from the ESS, the sector-level numbers invite greater skepticism and unease about what’s up next for US jobs markets.

Was the April JOLTS report a good report? It depends on the sector under scrutiny. Some had a good month, others had a less good month.

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ISM Data Invites Skepticism

The PMI data for April from the Institute of Supply Management provides further encouragement for skepticism.

The April Manufacturing PMI print showed Manufacturing continuing to expand in 2026.

The Services PMI print for April also showed expansion, although it also cooled for the second month in a row.

However, in contrast to the JOLTS net hiring data for Manufacturing, the ISM data showed Manufacturing employment contracted in April.

The ISM data has not shown manufacturing employment expanding since January of 2025, a trend which confirms that manufacturing employment has been shedding jobs for quite some time.

The ISM print also showed Services employment contracting, in marked contrast to the overall JOLTS data.

While the overall PMI data set is showing broad economic expansion, the PMI data does not show that expansion percolating through to increased employment.

How much actual job growth was there in April? Arguably, less than the government data sets are showing, and potentially none at all.

What is the state of jobs markets in the US? It depends on the report being examined, as well as the sector.

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No Obvious Energy Shock Impact

One encouraging aspect of the April JOLTS data is that it confirms that the energy shock from Iran’s illegal closure of the Strait of Hormuz and consequent disruption of global oil flows has not yet had any obvious effect on US jobs markets.

While the decline in both hiring and separations arguably shows a broad lack of confidence across jobs markets, the recent volatility in hiring and separations, as well as the longer term downward trend in both, indicates that jobs markets have been nothing if not skittish. Confidence is not a primary feature of US jobs markets at the moment, and has not been for quite some time.

Are jobs markets in the US improving? Broadly, the data shows that they are, although the improvement is uneven. However, some sectors, such as healthcare, may be showing signs of deterioration.

Certainly the JOLTS data gives a more optimistic portrayal of job growth for April, printing greater job growth in most sectors than than the ESS data. Whether that tells us anything about what sort of prior months’ revisions to expect on the upcoming May Employment Situation Summary remains to be seen.

Even though the JOLTS data shows uneven and somewhat problematic job growth, that events in the Middle East have not yet had a negative impact on US jobs markets augurs well for how well the US will be able to withstand the economic attritional battle currently being waged between the US and Iran.

As is the case in all attritional warfare, the longer the conflict goes before we start seeing the eventual signs of demand destruction, including broad based job loss, the better the US position is overall.

Against the backdrop of the war with Iran, is the JOLTS report for April a good jobs report? Arguably, yes.

Does the JOLTS data show the jobs recession in this country ending? Overall, the report certainly leans in that direction. If we continue to see sustained high levels of net hiring, especially if those levels are reflected in other jobs reports such as the Employment Situation Summary, then we definitely have to consider if the jobs recession is coming to an end.

The individual sector data is not quite as optimistic as the headline figures, however, and for that reason we should not leap to the conclusion that the jobs recession has completely ended. We can and should acknowledge that, for many sectors, there is confirmed job growth.

Whether one likes or dislikes the April JOLTS report ultimately comes down to the particular portion of the data one wishes to scrutinize.

Is the April JOLTS report a good report? It depends.

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From the preceding month, the PCE price index for April increased 0.4 percent. Excluding food and energy, the PCE price index increased 0.2 percent.

From the same month one year ago, the PCE price index for April increased 3.8 percent. Excluding food and energy, the PCE price index increased 3.3 percent from one year ago.

There is no mystery as to why inflation has returned: the United States, like the rest of the world, is experiencing an energy price shock as a result of Iran’s illegal closure of the Strait of Hormuz as part of the war between the US and Iran.

What is remarkable is that, somewhat contrary to expectations, the impacts of that energy price shock have not extended beyond energy prices into other goods and services, despite the rise in a variety of commodities prices and inputs.

Energy price inflation pushed the headline PCEPI number higher year on year, yet month on month consumer price inflation eased at the headline level, at the core level less food and energy, and for energy prices themselves.

One result of this fairly muted response to the continuing war with Iran was that Wall Street was able to project April’s PCEPI inflation numbers almost exactly.

That the inflation numbers were fairly easy to project is confirmed by the Cleveland Fed’s inflation nowcast projecting April’s numbers with the same accuracy.

Despite the ongoing war with Iran, the PCE Price Index, the Federal Reserve’s favorite consumer price inflation gauge, showed inflation cooling month on month, resulting in a slower increase year on year.

Despite the ongoing war with Iran, consumer price inflation per the PCE Price Index is more of the same in April that printed in March.

If the Strait of Hormuz remains closed, that will not remain the case indefinitely. Cost pressures are building in the economy, and at some point we will see broader price increases for more than just energy prices.

We are not seeing them yet.

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Little Room For Corporate Media Hype

The April PCE inflation data ironically gave corporate media little with which to spin their typically anti-Trump narratives. While corporate media headlines snarked about inflation rising at its fastest pace in three years, the buried lede was that April’s rise was less than March’s.

Economists polled by Reuters had forecast PCE inflation increasing 3.8% year-on-year. The PCE price index rose 0.4% month-on-month in April after shooting up 0.7% in March.

The nuance—ignored by corporate media—is the impact of cooler month on month inflation numbers.

A cooler month on month metric means that inflation’s rise year on year slowed in April rather than rose.

We should not pretend that April’s cooling indicators mean the worst of the price shock in energy is necessarily behind us. Consumer price inflation is still here, and the year on year numbers are higher than late summer in 2023.

We should, however, acknowledge that inflation has yet to heat up as it might, should the standoff between the US and Iran in the Persian Gulf persist.

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Energy Price Inflation Eased On Stabilizing Oil Prices

The elevated inflation metrics for April tell us that prices are indeed higher, with energy prices leading the way month on month, with April’s percent increase less than half of March.

The reality is that energy prices overall were showing signs of stability, albeit at a higher level than before the war with Iran.

Oil prices had actually been inching downward in the first part of April, before rising at the end of the month.

The price stability of early April helped move market prices for gasoline and diesel lower, with the increases not emerging until the last week or so.

Even the EIA’s retail price data for gasoline and diesel fuel showed stability during April.

The stabilization trend was confirmed by private reporting of retail gas prices.

There is an important distinction to be made between prices that are high and prices that are getting higher. For most of April, energy prices, and fuel prices in particular, were high but did not go higher until the end of the month.

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Food Price Surge

The one clear inflation pain point for April was the surge in food price inflation.

However, the month on month surge, while the highest since President Trump took office in January 2025, did not translate into a notable year on year increase.

Food prices rose significantly in April, but even so the longer trend is still one of stability. While current stability is no indicator of future pricing, it once again leaves us at the point of “not yet” when considering the worst case ramifications from the energy price shock which began in March.

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Goods And Services Eased

The clear sign that the energy price shock has yet to move beyond energy prices was the significant cooling of non-durable goods price inflation.

Even though durable goods prices ticked up in April, non-durable goods declined, and were joined by service prices.

Year on year, non-durable goods increased again, after being the only core category to surge dramatically in March.

Durable goods, which had been rising since well before the war with Iran began, changed little year on year.

Most significantly, month on month inflation for energy goods and services greatly outpaced nondurable goods and services.

Within the US, the energy price shock has been contained to energy prices.

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It Can’t Last

While energy price inflation is a significant discomfort to people, especially as it translates into retail gasoline prices, that the surge in energy prices has not translated into higher prices for other goods and services, broadly speaking, is itself noteworthy.

It is particularly noteworthy because, unless there is a peace deal struck between the US and Iran that reopens the Strait of Hormuz to shipping, that can’t last.

Globally, closing the Strait already means that stagflation is stalking the world’s economies.

Not only are energy prices up, globally, but key industrial commodities are rising as well.

Copper reversed its price decline towards the end of March and is continuing to rise.

Tin showed a similar trend towards increase beginning in late March.

Molybdenum has shown far less volatility, but it also has move sharply higher.

We will have to wait until the May data for both the Consumer Price Index and the Producer Price Index come out to see how much these non-oil manufacturing inputs are contributing to consumer price inflation within the United States.

We do not need to wait to see that these are real cost pressures. Commodities are industrial inputs, as a rule, which is to say that an increase in the price of various commodities is an inescapable increase in the cost of producing a variety of goods and services.

While manufacturers may opt to absorb those cost increases before passing them on to consumers, that will only last so far. If the inflationary price trends among various commodities continues, those cost pressures will result in consumer price inflation for a variety of durable and non-durable goods.

The energy price shock is for now limited to energy prices. That will not last indefinitely. It can’t last indefinitely.

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More Of The Same Inflation…For Now

With the war with Iran ramping up at the end of February, my assessment of the February PCE data was that is was the end of “more of the same”. For pre-war prices, that was absolutely true.

Ironically, the April PCE data has been largely a repeat of the March data. Once again, we have “more of the same” inflation, but with an energy price shock in the mix.

We have energy price inflation, and that is creating headline consumer price inflation within the PCE data just as it did within the CPI data. We also have food price inflation.

Beyond that, we are not yet seeing much in the way of new inflation pressures.

With rising commodities prices, it is only a matter of time before those trends translate into higher consumer prices. It may very well prove to be the case that May will be the month we see the energy price shock from Iran’s illegal closure of the Strait of Hormuz translate into a true stagflation phenomenon.

Globally, we are already seeing supply constraints for oil, for natural gas, and for a variety of industrial input commodities. Stagflation occurs when supply constraints push prices higher, particularly when it happens on top of a weak, underperforming economy. Iran’s lawlessness has provided the global economy with the supply constraints necessary to catalyze stagflation globally, and it is only a matter of time before those supply constraints begin to impact the US economy.

The April PCE data is hardly good news as far as inflation is concerned. 3.8% inflation is a sharp reversal from where inflation was just two months ago.

Yet the April PCE data does offer one significant bit of comfort: It is, in most respects, a milder repeat of the March data.

The April PCE data is more of the same war-inflected consumer price inflation data. We will not see “more of the same” indefinitely. We may see an end to “more of the same” in a few weeks with the May inflation data.

Consumer price inflation has indisputably risen, and risen by a lot. Energy prices have increased by as much as 50%, and fuel prices by even more than that.

Yet the stagflation shoe has not really dropped for the US economy—not yet. If the standoff in the Persian Gulf continues, or if hostilities are resumed, that shoe will drop, but for now we have the paradoxical “comfort” of “only” having to contend with energy price inflation.

The April PCE data is not at all good news. It is, however, a far cry from the worse news that we will soon be seeing if there is not an outbreak of peace between the US and Iran.

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The Producer Price Index for final demand increased 1.4 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 0.7 percent in March and 0.6 percent in February. (See table A.) The April increase is the largest advance since rising 1.7 percent in March 2022. On an unadjusted basis, the index for final demand rose 6.0 percent for the 12 months ended in April, the largest 12-month increase since moving up 6.4 percent in December 2022.

The 6 percent year on year rise was more than a percentage point above what Wall Street projected.

At 5.2% year on year, core producer price inflation was also well above Wall Street estimates.

In the space of just two months, headline producer price inflation nearly doubled, and core producer price inflation was not far behind.

The CPI print established that we are seeing the beginnings of stagflation seeping into the US economy. The PPI print is telling us that we are going to see more stagflation over the next month or so…but we may not see much beyond that.

The PPI print is bad. The PPI print may also be telling us the worst is either behind us or very nearly so.

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This Time, More Than Just Energy

A 6% headline PPI print year on year is never good news, but when it comes with a 5.2% core PPI print year on year, that is even worse. That is the PPI print we got for April.

Energy has been pushing the headline PPI data up since the beginning of the year, but in April the price surges extended beyond just energy.

Even month on month, core PPI was hotter than it has been at any time previously during the second Trump Administration to date.

Core producer price inflation had been cooling off since January. April ended that trend decisively. The sliver of good news from the March data evaporated completely in April.

We can’t point to energy prices as the culprit for core inflation—by definition the PPI data set segregates energy prices along with food prices to arrive at the core data set. This surge in core producer prices means there are price shocks and even supply shocks emerging besides energy prices.

In other words, stagflation is spreading.

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Energy Prices Hot, But Maybe Cooling?

While energy prices remained elevated in April, within the PPI data energy prices showed some disinflation after the March surge.

At 7.5% month on month, energy prices still showed the second hottest factory gate inflation print since the start of Donald Trump’s second term of office, but that it came in below the ultra-hot March print of 10% leaves at least a slender hope that there might be future cooling of inflation.

The April data also saw both unprocessed fuel prices rise marginally and processed energy goods prices ease slightly.

The market data shows a similar level of easing. Global diesel prices rose approximately 40% in March, while the Singapore Gasoil Futures contract rose “only” 17.6% in April, while the NY Harbor futures contract for diesel rose 9.8% and Europe’s Gasoil Low Sulphur contract rose 15%

Double digit percentage price growth in a single month is a large price increase. There is no avoiding that reality. There is also no avoiding the mathematical reality that 17% is less than half of 40%. Price inflation for diesel around the world was significant in April and considerably less than March. By definition we are seeing a decrease in inflationary pressures just within diesel fuel.

Maritime bunker fuel rates actually showed some decline in April.

After peaking in early April, fuel rates began to drop again, until April 21 (one week after the US Navy blockade took effect). Even with the rise at the end of April, bunker fuel prices were still below where they peaked earlier in the month. Despite the war with Iran, despite the closure of the Strait of Hormuz, in April we had outright deflation in maritime bunker fuel prices.

That the energy price surges are being driven by the oil dislocations in the Persian Gulf is self-evident. With roughly 20% of global oil supply either offline or in jeopardy, extreme price shocks are exactly what we would expect as a market response.

Even so, we can take some small comfort from the fact that the April surge was less than the March surge, and that the April surge was not across the board in all energy-related products. While we should take care not to extrapolate too much from just two months’ worth of price shifts, if March should prove to be when the inflation data peaked, the overall magnitude of the stagflation crisis we see unfolding in the US economy will be less than it could be otherwise.

That is, of course, me being hopeful. The data itself offers no assurance that we will not see future oil price surges dwarfing what we saw in March and April. April saw less inflation than March, but that is no guarantee that May will not see more inflation than April. With prices being driven primarily by the ebb and flow of war in the Persian Gulf, any change in the geopolitical status quo could either ease the stagflation crisis globally or exacerbate it globally. Neither outcome is improbable at the present time.

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Food Prices Crept Up, Along With Goods

In a sign that the inflationary pressures on energy are spreading into other items on the Producer Price Index, food price inflation flipped from deflation in March to rise 0.22% in April.

While the return of food price inflation is a signal that the inflationary pressures on energy prices are spreading beyond just energy, we should note that, a less than a quarter of a percentage point, the increase itself is incremental.

Goods prices showed a similar incremental increase from March, with inflation rising from 1.9% to 1.96% month on month.

Service prices, however surged by very nearly a full percentage point in April.

The rise in service price inflation accounted for 60% of the overall rise in the PPI for April. While energy is the obvious price shock, and a continuation from March, services were what drove most of the April PPI increase.

Within Final Demand for Services, the primary inflation driver was in Transportation and Warehousing.

While not a direct energy price itself, transportation prices especially are easily seen as “energy adjacent” (if only because of fuel costs), making them the obvious next layer of inflation to come after a surge in energy prices.

Rising energy prices are pushing up service prices. Given the ubiquity of transportation costs through out the whole of the US economy, as transportation prices are pushed up, we should expect to see other prices being pushed up in future months as well. The price surge is not going to remain limited to just transportation.

Even so, while we are seeing a surge in transportation prices, that is the only place we are seeing significant new inflationary pressures for April. Goods price inflation overall was not much greater in April over March.

When we look at retail fuel prices from the EIA, we have further confirmation that there are no new inflationary prices entering the picture. After posting a nearly $2/gallon increase in March, retail diesel prices largely plateaued for April.

While retail gasoline prices continued to rise in April, the pace of the increase was much slower than in March.

Are we nearing what will be the peak in retail fuel prices? The overall trajectory certainly suggests that fuel prices are nearing a ceiling level. That would also imply that transportation prices might not rise much further in coming months.

The data does not allows us to extrapolate to that degree with confidence, but the possibility is certainly there.

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Intermediate Demand Inflation Getting Worse

Where we do not see signs of a ceiling level is among intermediate demand prices. There factory gate inflation rose from March to April for each intermediate stage.

This is the clearest signal within the PPI data set that there is significant inflation still to work through to final demand goods and services, and from there into the Consumer Price Index. While we have reason to hope that some inflationary pressures may already be reaching a maximum, given the levels of disruption from the Persian Gulf, those pressures are still reverberating through the rest of the economy, and that means they will be pushing other prices up in May and June, and possibly beyond.

That is especially worrisome news when it comes to fertilizer prices.

While nitrogenous fertilizer manufacturing has been showing signs of inflationary pressure even back in January, well before Operation Epic Fury, phosphatic fertilizer manufacturing was showing no such pressure prior to April.

If we drop back to the year on year perspective, we see that nitrogenous fertilizer prices have been moving up since early 2025. Phosphatic fertilizer prices do not show much of any price increase before April.

Rising fertilizer prices mean a major cost in food production is also rising—a cost which is difficult to control without diminishing levels of food production itself. Cut back on fertilizer applications and harvest yields are likely to diminish. Both as a direct cost and as a secondary effect of reduced harvest yield, rising fertilizer prices today mean we are seeing a food price inflation surge building for later in the fall and into 2027.

April was a mild month for food price inflation. Future months will not be quite so mild.

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How Much More Inflation Will We Get?

The significance of producer prices is that they are seen as a leading indicator for consumer prices. Major inflation shifts often emerge in the producer price index first, and in the consumer price index a month or two later.

Certainly when we look at the Producer Price Index and the Consumer Price Index percent changes year on year, we see the CPI trend is roughly one to three months behind the PPI trend, particularly when there are major price shifts.

When the changes are smaller the correlation becomes a less certain, but when there are large shifts, they generally impact the Producer Price Index first.

If we see a peak in year on year inflation for the Producer Price Index, we may expect to see a similar peak in the Consumer Price Index in the very near future. If we see a trough in the PPI, a trough in the CPI is not far behind.

Right now, we are seeing a major surge in the PPI. This suggests there are future rises in the CPI for May and probably June also.

Yet we are also seeing signs at least within energy prices that the inflationary pressures pushing prices up may not get much worse than where they are at today. Energy price inflation may have already peaked, and other prices may be on the verge of peaking. Retail fuel prices may be reaching a ceiling level beyond which they are not likely to go.

We are seeing a major surge in the PPI, but we are also seeing signs the peak may not be far off.

While the final verdict on energy price inflation will only come when the Strait of Hormuz is finally re-opened as an international waterway (which itself is not likely to come before there is a final peace between the United States and Iran), it may very well be that the total impact of the Strait’s closure is not going to rise much further. If President Trump and the War Department decide to simply continue the US Navy blockade of Iranian shipping, and do not resume major hostilities against Iran, the current state of affairs in the Persian Gulf may develop a short-term stability, where the magnitude of changes day to day and month to month do not shift dramatically.

Should we see even a temporary geopolitical equilibrium in the Persian Gulf, we should expect to see also a temporary equilibrium in energy prices, and from energy prices transportation and then other prices. Where there is significant inflation today we may not see significant inflation tomorrow.

Note, however, that a possible lack of future inflation is not the same as suggesting that oil and other prices are going to drop quickly. While equilibrium and a price plateau are possible even without peace between the US and Iran, price reductions are not. For oil prices and then other prices to come down, we must first have peace between the US and Iran.

How much energy price inflation—and thus how much stagflation—we ultimately get hinges entirely on the future of oil prices, and that rests entirely on how the war between the United States and Iran evolves. A peace deal would bring prices down, a mere continuation of the US Navy blockade would keep the current elevated prices in place, and a resumption of hostilities could easily push oil prices quite a bit higher.

Each scenario carries its own outcome on oil prices, and thus each scenario carries a consequent impact on overall inflation, first Producer Price Inflation then Consumer Price Inflation. We do not know—and cannot know—which scenario we will have for the coming months until we have it.

Will we get more inflation? It is entirely possible.

Is the worst energy price inflation behind us? It is possible, even probable, that the biggest energy price shifts are already behind us. That would mean the biggest price shifts giving rise to stagflation concerns may already be behind us as well, or soon to be behind us.

That is the optimistic outlook—one might even call it a “Trumpian” outlook. Whether that outlook is the ultimate outcome is, for now, a question for which we do not have an answer.

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Now that the April Consumer Price Index Summary is out, we are beginning to see how that energy shock is reverberating through the rest of the US economy.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 percent on a seasonally adjusted basis in April, after rising 0.9 percent in March, the U.S. Bureau of Labor Statistics reported today. Over the last 12 months, the all items index increased 3.8 percent before seasonal adjustment.

The index for energy rose 3.8 percent in April, accounting for over forty percent of the monthly all items increase. The shelter index also increased in April, rising 0.6 percent. The index for food increased 0.5 percent over the month as the index for food at home rose 0.7 percent and the index for food away from home increased 0.2 percent.

The index for all items less food and energy rose 0.4 percent in April. Indexes that increased over the month include household furnishings and operations, airline fares, personal care, apparel, and education. Conversely, the indexes for new vehicles, communication, and medical care were among the major indexes that decreased in April.

The all items index rose 3.8 percent for the 12 months ending April, after rising 3.3 percent for the 12 months ending March. The all items less food and energy index rose 2.8 percent over the year, following a 2.6 percent increase over the 12 months ending March. The energy index increased 17.9 percent for the 12 months ending April. The food index increased 3.2 percent over the last year.

The TL;DR version: prices are up. As with last month, this is not a surprise. Even with the Personal Incomes and Outlays report, it was clear that April would see inflation heating up, and beyond just energy prices. The only question was simply “how much?”

We are going to see elevated energy prices again in April. How much we see either inflationary impacts or stagflationary impacts beyond energy prices remains to be seen.

Beyond energy price inflation, the fog of war still surrounds the economics of wartime.

Energy price inflation is continuing, but food price inflation is returning, and non-durable goods inflation is also heating up, although still primarily from energy price inflation.

Stagflation is starting to creep into the US economy. The price shock that started with energy prices is percolating throughout the rest of the Consumer Price Index.

Thus far, the worst impacts are still contained to energy prices. Do not be deceived, however. Prices are heating up across the board and we should expect that trend to continue for at least as long as the war with Iran continues.

We now know we will have stagflation. What we do not know is how much we will have. Not yet.

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Headline Inflation Actually Cooled, And So Did Core Inflation

While there is no denying that the energy shock continues to pound the US economy, there is also no denying that the price shock’s impact was less in April than it was in March.

Year on Year, both headline and core inflation rose, and rose significantly.

Yet Month on Month, inflation was more restrained

There is one encouraging aspect in both the headline and core inflation figures for April: headline inflation cooled significantly, although core inflation printed 0.27pp higher on the month. This is a reversal from the first few months of 2026, where core inflation was coming down even as headline inflation was heating up.

Core inflation strips out the energy component. A sharp rise in core inflation is almost certainly indicative of a contagion effect where energy price inflation is creating inflationary pressures on other consumer prices, and so the inflation effect spreads.

Stagflation is clearly stalking the US economy.

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Energy Prices Rose, But Less Than Before

One possible note of encouragement about energy price inflation: we had less of it in April than in March.

For all energy components, the April price shift was a disinflationary one.

Upon inspection, however, this is not surprising. Oil prices rose approximately 14% for Brent Crude in April, and 10% for West Texas Intermediate.

In March oil prices were up by as much as 33% for Brent Crude.

Diesel prices for Europe displayed similar trajectories, rising 17% in April, compared to 12% for the United States.

Energy price inflation remains elevated, but the magnitude of the April increase has been much less than it was for March, and we are seeing that in the overall CPI data.

Could this be an indication that the overall inflation impacts of the war with Iran will be relatively brief, with price rises starting to ebb either next month or in June? That is a possibility. However, a lack of energy price inflation should not be confused with energy price deflation. We may see energy prices stop rising. We should not anticipate much in the way of a decline in energy prices until the Strait of Hormuz is opened for navigation once more.

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Food Price Inflation

One very not good price shift in April was an increase in food price inflation.

After ticking down ever so slightly in March, for April food prices jumped 0.5pp month on month.

However, we should also note that, year on year, food price inflation remains in a dynamic equilibrium around 3%.

We should not expect this trend to hold for very long. While inputs for food prices thus far have not been dramatically impacted by the war with Iran, we are seeing a marked surge in fertilizer prices. While this will have less impact on the crops already planted, it will have larger impacts for crops which get harvested later in this year or early next year.

The impact of higher fertilizer prices varies across farms depending on the timing of fertilizer purchases and the type of nitrogen fertilizer used. Farms that purchased fertilizer prior to February will see limited impacts on 2026 production costs. In contrast, farms that delayed nitrogen purchases are exposed to recent price increases. Anhydrous ammonia is typically the lower-cost nitrogen source compared to nitrogen solutions. All farms are expected to face significantly higher costs for the 2027 crop.

That impact is being felt worldwide, and especially in Europe.

For spring, Europe’s farmers got lucky. Most had stocked up on fertilizer before the war, and European Commission officials say this season’s needs are “largely secured.”

That luck is running out. Farmers are now placing orders for this fall’s plantings, and the math doesn’t work out. Wheat is selling for the same price it sold for before the war, even as fertilizer costs have risen. Some growers are cutting back on nitrogen. Others are switching to crops that need less of it. Both choices mean smaller harvests in 2027, when shoppers will finally feel the effects of the war.

While food price inflation is on track to be more severe in Europe than in the United States, the US is also on track to experience significant food pricing inflation.

Food prices are going to be driven by the bounty of each crop, and the bounty of each crop is contingent largely on the amount of fertilizer applied. With fertilizer costs increasing, if farmers reduce fertilizer usage then crop yields will suffer, pushing up prices, and if farmers sustain current levels of fertilizer usage, then the costs of producing the crop will eat into the profits, again pushing up prices.

The upward pressure on fertilizer prices from the surge in energy prices can only resolve one way—with higher food prices and for longer.

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Stagflation Is Starting, But Still Restrained

The data is clear: we are seeing the initial indications of stagflation taking root in the US economy.

However, we should presume that this means all prices are going to surge to extraordinary levels. At present, that is not happening.

Durable goods prices actually fell in April.

Non-durable goods however, still showed elevated month on month inflation, although it had cooled significantly from March.

The non-durables increases, however, come with the caveat that much of this is due to energy price inflation already noted.

Without energy price inflation for non-durable goods would be greatly reduced.

Service price inflation more than doubled in April.

Shelter price inflation also doubled in April 2026.

We should note, however, that the more forward-looking Zillow Observed Rent Index shows shelter price inflation increasing on a more regular cycle, making it less likely for inflation in housing to be the result of dislocated supply.

Inflation is indisputably heating up more or less across the board, but we are not (yet) seeing the price surges we have been seeing in energy.

That blessing is likely to prove highly transitory, however. The longer the war with Iran drags on, the longer the Strait of Hormuz remains closed, the greater the stagflation pressure on the US economy.

We are seeing a little stagflation now. We will see more next month, and even more the month after that, until there is peace in the Middle East once more.

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Inflation + Deflation = Stagflation

Because we don’t talk about stagflation often, it behooves us to maintain awareness of what the term actually means.

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

An easy sign of low economic growth is weak unemployment—the so-called “misery index” is predicated on rising inflation and rising unemployment—but we can also see indications of weak or sub-par economic growth in whether or not we have inflation or deflation in certain price subindices.

When we look at how inflation is unfolding relative to the various subindices, how we are seeing persistent deflation in durable goods, and arguably in non-durable goods as well, we see that the energy price shock can very well be the sort of supply-side shock which, when coupled with deflationary pressures, produces stagflation.

While the data is still too new to have supreme confidence in the conclusion, the similar inflection points from March to April suggests that energy price inflation is crossing into other goods and services.

However, we are also seeing deflation occurring in durable goods prices. With non-durable goods, it is highly likely that most if not all of the inflation we are seeing there is the result of energy price inflation.

When we look at specific durable goods categories, such as automobiles, we see that overall retail sales have largely plateaued and even declined since the start of 2025.

Unsurprisingly, new and used car prices have printed mostly deflation since the start of 2025.

Another unavoidable sign of weakness is that weekly earnings have, for the most part, not kept pace with inflation, as most paychecks have yet to recover from the 2022 hyperinflation cycle.

Even goods producing jobs are, as of the April data, have only just recovered from 2022. If inflation continues at an elevated rate, even goods producing jobs will quickly lose ground to inflation again.

The end result of the intersection of rising prices brought on by supply shocks is that demand destruction is the only way an economy can rebalance after such a shock.

Energy prices are rising because the availability of energy-related products is suddenly significantly reduced. The reason for the scarcity is obvious: the closure of the Strait of Hormuz and consequent disruption of Persian Gulf oil flows. The supply of oil available at all price levels has been reduced.

When there is a sudden drop in supply for anything, demand can only reach a new equilibrium level through demand destruction. Quantities purchased must go down to match the new supply curve.

That is what we are likely to start seeing over the coming months: demand destruction, as consumers adapt to suddenly higher energy prices.

The consequence—and cure—for stagflation in any economy is always going to be demand destruction. That’s the next evolution that we will soon see in the US economy.

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How Much Worse Can It Get?

With an ongoing price shock pushing up first energy prices and then prices for other goods and services, and with peace seemingly elusive with Iran thus far, the natural question to ask at this point is “how much worse can it get?”

In the worst case scenario, it can get quite a bit worse. If events in the Persian Gulf result in greater damage to both Arab and Iranian oil infrastructures, if Qatari LNG production is further damaged and pushed offline for a number of years, energy prices will be elevated for a number of years.

Those higher energy prices are already pushing up diesel prices around the world to nearly double pre-war levels. Those higher energy prices are already pushing up bunker fuel prices for shipping. That much is happening, and it could get significantly worse if the war with Iran takes a violent turn and more infrastructure damage is unleashed by both sides.

Maersk CEO Vincent Clerc is already warning the investor community that, if elevated fuel costs persist, shipping companies will be compelled to pass along at least a portion of their increased fuel costs.

The more benign scenario for the US will be that US oil production serves to stabilize energy prices here in the US. Diesel prices remain high, but do not get much higher. Bunker fuel rates for shipping remain high, but do not get much higher.

When there is no price increase, inflation is zero. However, if prices stabilize at a new, higher level, inflation is still zero but the affordability of goods and services is constrained until earnings catch up to inflation. As we are already seeing, that is not a quick process.

With earnings lagging inflation, and that inflation driven entirely by supply shocks and sudden increases in scarcity, we have enough weakness evident in the US economy to acknowledge that the April CPI report shows the beginnings of a stagflation episode. Prices are up, supply is down, and eventually demand will be down as well to compensate.

How much will prices be pushed up in May or June? That we do not know. Future price movements in oil and related refined products are entirely at the mercy of the Strait of Hormuz. Reopen the Strait and get Persian Gulf oil flows trending back to pre-war levels, and the inflationary pressures on energy are immediately alleviated. The inflation dynamic right now is as simple as that.

At present, the Strait of Hormuz remains blocked, and all indications are that it is going to remain blocked for at least a little while longer. Energy price inflation is going to rise for at least that little while longer. Stagflation will stalk the US economy for at least that little while longer.

We have stagflation. The fog of war means we do not know how much stagflation we will ultimately have.

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Total nonfarm payroll employment edged up by 115,000 in April, and the unemployment rate was unchanged at 4.3 percent, the U.S. Bureau of Labor Statistics reported today. Job gains occurred in health care, transportation and warehousing, and retail trade. Federal government employment continued to decline.

That figure was certainly a surprise to Wall Street, which had a much more conservative projection prior to the report’s release.

Yet on closer examination, the jobs report still carried distressing signals that all is still not well with US job markets.

Joblessness still rose, and the number of people no longer in the labor force still rose. That’s not a good sign.

Key sectors still experienced a drop in employment. That’s not a good sign.

Wages rose, but, in light of the March price shocks from the war with Iran, which are all but certain to be even greater in April when the Consumer Price Index data gets published next week, they are not gaining ground on inflation.

The headline jobs number was indisputably positive. The details underneath…not so much.

Stagflation is (almost certainly) coming.

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Lou Costello Corrections

As with every Employment Situation Summary report, we have to take the headline numbers with a grain of salt. We know the April numbers will be revised in May and again in June, and we know that the revisions can be substantial.

The Bureau of Labor Statistics revised February’s job loss shocker down by an additional 23,000.

The change in total nonfarm payroll employment for February was revised down by 23,000, from -133,000 to -156,000, and the change for March was revised up by 7,000, from +178,000 to +185,000. With these revisions, employment in February and March combined is 16,000 lower than previously reported.

Of the 331,000 new jobs initially reported during the first four months of 2026, 27,000 of them never existed.

We should anticipate future downward revisions to the job numbers, for once again the Employment Level from the Current Population Survey (Household Survey) diverges sharply from the Current Employment Statistics (Establishment Survey) All Employees Data.

That is a strong sign that Lou Costello Labor Math is at work in the jobs numbers.

If the number of new jobs is rising, the number of employed people should also be rising. That, at least, is the theory.

Why the reality is different highlights the ongoing data inadequacies of the Employment Situation Summary, and necessarily colors any analysis.

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Corporate Media Does Not Question The Numbers

In their usual demonstration of journalistic inadequacy, corporate media once again take the report at face value.

CNN maintains the fictitious narrative that US labor markets are healthy and robust at the moment (they are not).

April’s employment gains mark an expected retreat from March, when a revised 185,000 jobs were created, boosted by factors such as the end of large labor strikes as well as favorable weather.

However, the job growth seen last month was much stronger than the 65,000 that economists had estimated. No change in the unemployment rate was anticipated.

The war in the Middle East wasn’t expected to negatively affect April’s employment numbers but it still presents a risk. The health of the US labor market and the broader economy could be negatively affected if gas prices stay persistently high and cut into consumer spending, raise business costs, as well as trickle into higher prices for other goods and services.

CNBC touted the consistency of the unemployment rate as proof of labor market health.

Nonfarm payrolls rose by a seasonally adjusted115,000 for the month, down from the 185,000 created in an unusually strong March but better than the 55,000 forecast in the Dow Jones consensus estimate.

The unemployment rate held at 4.3%, further proof that the labor market has reached a point where only modest job creation is needed to keep the jobless level steady, given little growth in the labor force.

Politico touted the jobs report as a clear victory for President Trump.

The Labor Department on Friday reported that U.S. employers added 115,000 jobs in April — more than double the 55,000 projected by surveys of economic forecasters — and the jobless rate was unchanged at 4.3 percent. With unemployment hovering below historic averages, and private sector hiring showing signs of a revival, GOP and White House messaging shops quickly seized on the report as proof that Trump’s economy is humming.

“The April jobs report is a clear upside surprise,” Eric Merlis, a managing director and co-head of global markets at Citizens Bank, said in a note shortly after the report’s release. And “importantly, the data suggests the hostilities in the Middle East have had little visible impact on the U.S. job market.”

Alternative media is not necessarily any better, with Breitbart insisting that labor demand is strong and that the “break even” jobs number is close to zero (it clearly isn’t.

That world is gone. What replaced it is a labor market in which the constraint has flipped to the supply side. The era of mass immigration supplying a steady stream of excess labor is over. As a result, the break-even rate — the number of new jobs the economy needs each month just to keep the unemployment rate stable — has fallen from the roughly 250,000 per month figure that became conventional wisdom during the Obama years to something closer to zero. Research from the Dallas Fed and the Federal Reserve Board has been pointing in this direction for quite some time, but the implications still haven’t sunk in for most analysts.

What’s more, demand for labor is extraordinarily strong. Except for the pandemic lockdown period, for years now we’ve been consistently below levels of unemployment that economists once thought were the markers of a healthy economy. Unemployment rates that once would have been seen as evidence the economy was overheating are now the norm.

Even the usually cynical ZeroHedge, while it acknowledged the negative signals in the report, led with the Employment Situation Summary turning in the first back to back pair of job gains month on month in over a year.

In his preview of today’s NFP report, Goldman’s Delta One head wrote that “NFP almost feels like a sideshow at this point. You can argue weak labor data gives a Warsh led Fed enough cover to cut, but with oil and input inflation still elevated there’s also an argument that a weakening labor market alongside a constrained Fed is actually the more difficult combination for risk assets.” With that in mind, moments ago the BLS reported that in April the US added a red hot 115K, above the median consensus of 65K (and near the upper end of the forecast range which peaked at 133K), down from an upward revised (for once) 185K (originally 178K). This was the first back to back gain in jobs in a year.

Given the disparity between the Employment Level and All Employees payroll level, we should not expect either the March or the April figures to remain at their elevated levels. I shall be happy to be proven wrong, but the divergence strongly suggests the ESS jobs data remains sketchy and problematic at best.

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Uneven Job Growth

Also of concern is the uneven nature of the reported job growth.

Unlike the March JOLTS data, which showed across the board job growth, the April data is tempered by job losses in notable sectors.

Of particular concern is Manufacturing once again shedding jobs, which has been its pattern for far too many months now.

That is a sobering reminder that, even with job gains in Mining and Construction, goods producing jobs are still not in perfect health.

Among service providing jobs, one positive note was the increase in Trade, Transportation, and Utilities jobs.

For a change, TTU job growth outpaced Healthcare job growth.

The strong gains in these two sectors served to counter the job losses in Information and Finance.

Leisure and Professional Services posted unremarkable job growth.

At a time when Artificial Intelligence is generating much hype and hooplah in the media, the continued loss of Information sector jobs should stand as a reminder that AI is far from the proven economic revolution many proclaim it to be.

There is strong growth reported in some job sectors. Other job sectors continue to underperform, with minimal job growth or actual job loss.

This is not a rising tide of employment which is lifting all job ships.

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Joblessness Rises

While the official unemployment rate is reported as remaining unchanged, that assessment is a result of rounding at the first decimal place rather than the second.

When the ratio of unemployed persons to the overall workforce is carried another decimal place, the official unemployment rate shows a rise from 4.26% to 4.34%.

More significantly, the “real” unemployment rate—the official count of unemployed plus those not in the labor force but who want a job now—rose from 7.49% to 7.60%.

The actual count of unemployed workers rose 7,373,000 in April.

While this is still down from a November 2025 peak, it is still significantly higher than where it was at the start of the Trump Presidency.

The peak was earlier for those Not in the Labor Force who Want a Job Now, but the longer term trend is still rising.

The overall category of workers Not in the Labor force has been trending up since January 2025.

Whatever the “break even” jobs number is for the US economy, it is clearly somewhere north of 115,000. A break even figure would leave both unemployment numbers and those not in the labor force decreasing rather than increasing.

This rise in joblessness is consistent with the ongoing decline in the overall Employment Level.

The current decline is the third such period of stalled or negative employment growth in the US since 2021. Aside from brief episodic bursts of employment, employment growth has been problematic since the beginning of 2022.

This lack of employment growth shows up as a persistent decline in the Employment Population Ratio since 2023.

If employment is declining, if the employment population ratio is declining, and if joblessness is rising, the one thing we cannot say is that labor demand is “strong”. Certainly it is not “strong enough.”

At the macro-economic level, that’s a problem.

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Wages Remain Soft

While wages are increasing in nominal terms, only goods producing wages have fully recovered from the 2022 hyperinflation cycle. Service producing wages and overall private sector wages remain very much behind inflation.

Also of concern is that, broadly, wage growth by sector has been getting softer as we move through 2026.

Even though manufacturing wages had just caught up with inflation at the start of the year, the recent price shocks and consequent inflation increases make it unlikely that manufacturing wages will continue to remain above the rise of inflation.

Most service providing wages remain below the inflation curve and have not recovered any real ground after the 2022 hyperinflation cycle.

When the Consumer Price Index data comes out next week, these sectors are all but certain to have lost even more ground—even Healthcare, which has been the mainstay of job growth in the US.

Nor should we be surprised that wages remain soft. When there is rising joblessness, by definition labor supply is outstripping labor demand. When supply is plentiful and demand is scarce, prices—in this case, wages—drop.

Soft wages and rising joblessness tell us in unequivocal terms that we still are not producing the numbers of jobs we need to keep joblessness at bay or on the decline.

If the economy were producing jobs above the much-ballyhooed “break even” number, wages would be rising. In sector after sector, they are not.

That’s a problem.

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Signs Of Stagflation?

With signs of soft labor markets within the jobs report, the coming (and by now unavoidable) inflation shocks lead to a very uncomfortable question: is the US about to experience a stagflation crisis such as it saw in the 1970s?

Certainly the risks of stagflation are real. I have written about those risks quite a bit in the past and the war with Iran give those risks an immediacy they did not have before.

Nor can we overlook the reality of a growing stagflation crisis in China, as their petroleum supply chains get disrupted from the war with Iran.

On Friday, Maersk Shipping CEO Vincent Clerc warned that price increases were heading into most economies, as shipping companies grapple with the increased costs of bunker fuel. Such increases are likely to entail at least a measure of demand destruction.

“As some of these costs make their way all the way up to the end consumer, will we see demand destruction at the consumer level? And will that then reverberate throughout the supply chain with softer demand in the second part of the year?” he questioned.

“That is certainly something that we’re looking out for very, very closely, because it would suddenly change the equation on how this crisis is going to impact the global supply chain and our industry in particular.”

Nor can we assume that Clerc is merely using the war as a cover to push through price increases as a form of rent-seeking behavior. That Persian Gulf oil production has fallen precipitously just through March is already established.

While bunker fuel rates had been declining in the start of April, by the end of the month they were clearly trending up.

Additionally, signs of global oil supply disruption are increasing, as observed global oil inventories, which had been rising in 2025, are anticipated to decline as the disruptions from the Persian Gulf take hold.

An oil supply shock may even be in store for the US, as crude inventories—including those in the Strategic Petroleum Reserve—are declining at present.

Exactly how great a supply shock there might be is problematic, because while production has not varied much over the past year—and has even dropped off in recent weeks—there has been growth in US exports of refined products.

There are definite stresses to US oil supply due to emerge within the US economy, but there is also a not insignificant export buffer which can cushion some of the shock.

If the war with Iran persists, we are very likely looking at a global economic scenario where the question is not if there will be stagflation, but how much stagflation will there be? Right now, that estimate is rising.

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Good But Not Good Enough?

The April jobs report shows there was job growth in the United States. That report echoes the ADP report and is a continuation of reporting trends from March. Even if we anticipate significant corrections to the data (and I do), we are still looking at a report that shows a greater level of job growth than we have seen in recent months.

Job growth is always a good thing, and on that basis the April jobs report is a good report. Yet job growth that does not meet or exceed the available labor supply—job growth that comes in below the “break even” threshold, is ultimately a net negative.

We need to create more jobs in this country, and we need to create significantly more jobs than the 115,000 reported as the headline figure for the April report.

We need significant increase in labor demand because that is the only way we can get increases in wages, allowing workers to finally catch up to the 2022 hyperinflation cycle. Wage increases are likely to become a particularly thorny topic, as the war with Iran is quite probably going to give rise to at least a brief surge in inflation, if not a completely new hyperinflation cycle.

In April we got significant job growth. Unfortunately, we did not get enough job growth. We certainly are not getting needed wage growth.

March and April have produced sizeable jobs numbers, and that has lent them an optimistic, upbeat appearance.

However, with joblessness rising and wages not rising, we are faced with the blunt reality that March and April were not good enough. With corrections still yet to be made, March and April should be anticipated to be seen as less good than they are now.

Without the war with Iran, this would have been a good jobs report. With the war with Iran, this is a cautionary jobs report, and a warning that future months are not likely to be at all as good.

Stagflation is (almost certainly) coming.

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For April ADP hopped on the BLS bandwagon and printed a blowout National Employment Report showing strong growth across all job sectors, for an aggregate of 109,000 new jobs.

ADP’s Chief Economist Nela Richardson provided her usual optimistic statement for the press release, touting job gains among small businesses.

“Small and large employers are hiring, but we’re seeing softness in the middle,” said Dr. Nela Richardson, chief economist, ADP. “Large companies have resources to deploy, and small ones are the most nimble, both important advantages in a complex labor environment.”

Coming in the second month of a war with Iran that has sent energy prices soaring, that April surpassed March by more than 40,000 jobs is a remarkable report by any measure.

The March figures have subsequently been revised downward, to 61,000.

How strong was the report? The Wall Street consensus was some 10,000 jobs less, and the Trading Economics Forecast was only 8,000 jobs above the March number.

Wall Street was not expecting the ADP report to be this strong.

Coming as it does on the heels of a strong March Job Openings and Labor Turnover Report, and with minimal revisions from March, the ADP report is a strong signal that labor markets in the US are waking up.

Will the April Employment Situation Summary also surpass Wall Street expectations?

With a consensus projection of 73,000 private sector jobs, and a Trading Economics forecast of 83,000 private sector jobs, the stage is certainly set for the “official” monthly jobs report to do exactly that—or provide a crushing disappointment.

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Almost Every Sector Showed Growth

One reason the March JOLTS report deserves serious scrutiny was that it showed job growth in every sector.

The April ADP report very nearly matches that.

While healthcare provided the bulk of the jobs reported, only Professional and Business Services reported a loss of jobs in April.

The ADP report has been showing consistent job growth for several months, with six of the last nine months at 60,000 jobs or more.

Manufacturing showed a welcome increase in jobs, the first such increase on the ADP report since March 2024.

Construction and Mining were also positive on the month, making the ADP report very positive for goods-producing jobs.

Among service-providing sectors, only the Professional and Business Services segment lost jobs in April.

Trade, Transportation, and Utilities reversed a March decline, printing 25,000 jobs.

Leisure and Hospitality, Information, and Finance all showed solid if unremarkable gains.

By far Healthcare showed the biggest increase in jobs, with more than half of the total jobs created for April

As with the March JOLTS report, job gains across all sectors but one signals rising labor demand, and that is a necessary predicate to wage growth.

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New Strength In Goods Producing Jobs

The ADP report has shown positive job growth among service producing jobs for the last nine months. Goods producing job sectors, however, were shedding jobs for most of 2025. 2026 has been a year of new strength for the goods producing job sectors, even as service producing job sectors stayed strong.

That 2026 is a year of recovery for goods producing jobs coincides with the return to expansion for the Institute for Supply Management Manufacturing PMI.

April was also a month of improvement in the S&P Global Manufacturing PMI, which has been printing expansion for several months, but surged to 54.5 from March’s 52.3.

As with the March JOLTS data, the ADP report is consistent with the PMI data showing manufacturing coming out of the gate strong for 2026.

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ADP Report Consistent With Unemployment And Layoff Data

The ISM PMI data are not the only metrics consistent with the ADP jobs report.

The Department of Labor’s unemployment data has been charting a steady decline in initial unemployment claims going back into last fall.

Continuing claims have also been charting a decline since the fall.

The decline in continuing claims especially has been more rapid in recent weeks, a trend which is entirely consistent with the job growth being reported by ADP.

The Job Cut Announcement report from outplacement firm Challenger, Gray, and Christmas also indicates 2026 is a stronger year for jobs than 2025. In the first three months of 2026, only January exceeded 2025 levels for layoffs and job cuts.

These employment reports are independent signals that are consistent with what the ADP report is showing for 2026. We have at least these reports as reason to take the ADP report at face value.

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Not All Other Data Shows Strength

While the ADP report is backed up by a number of independent metrics indicating an improving economic situation, we should not pretend that there are not countervailing signals which present a far less optimistic view of American jobs markets.

The ISM Manufacturing Employment metric has been printing contraction since January 2025.

The ISM Services Employment metric has been more volatile than the ADP data suggests for service-providing jobs.

Nor should we overlook that the Bureau of Labor Statistics unemployment level data indicates that joblessness has been trending up since mid 2023, a long-term trend which has persisted through last month’s Employment Situation Summary.

If overall unemployment levels are rising in this country, then jobs markets are less robust than the ADP report indicates.

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Is The Data Real?

If the ADP report is accurate, American jobs markets have expanded significantly in recent months.

If the ADP report is accurate, labor demand is increasing at a significant pace.

The caveat, of course, is the predicate stated both times: “if the ADP report is accurate.”

Is the ADP report accurate? That revisions to the March report were only 1,000 means the report’s authors at the very least consider the report to be accurate.

The ADP report presents us with the same question as the March JOLTS report: Is the jobs recession coming to an end? The ADP report invites us to reach the same conclusion as that implied by the JOLTS report: yes, the jobs recession is coming to an end.

Could the ADP report be wrong? Absolutely it could be wrong. As with all of the jobs reports, the ADP report is fundamentally a report of estimates and extrapolations. As we have seen with the Employment Situation Summary, the extrapolations themselves can be problematic. If the baseline models upon which the estimates are based are flawed, the reports generated will be flawed.

By the same token, the ADP report could be correct. The baseline models might not be flawed, or might not be egregiously flawed.

This much is certain: The ADP report raises the expectation bar for Friday’s April Employment Situation Summary. After the blowout month the BLS jobs report had in March, that ADP prints a blowout report for April suggests the BLS jobs report will be positively stellar.

Is the jobs recession ending? ADP is telling us that it is.

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The number of job openings was unchanged at 6.9 million in March, the U.S. Bureau of Labor Statistics reported today. Over the month, hires increased to 5.6 million while total separations changed little at 5.4 million. Within separations, both quits (3.2 million) and layoffs and discharges (1.9 million) were little changed.

Corporate media was typically chagrined that the much-touted and supremely meaningless job openings number had actually slipped a little. The metric that does have meaning, however, is the hiring numbers.

Hiring rose significantly, and even though separations rose as well, overall net hiring rose at a pace in keeping with the jobs numbers from the Employment Situation Summary.

Does a strong net hiring number indicate the jobs recession has reached a bottom? Is a turnaround and actual growth in net hiring in the very near future?

With strong net hiring across all sectors, the March JOLTS report gives us good reason to hope so.

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Openings Fell, But Hiring Surged

Corporate media much prefers to see large inflated job openings numbers. It’s not a rational fixation, since roughly half of those so-called job openings are not being filled by anyone. With that fixation, outlets such as Bloomberg were not happy that job openings ticked down slightly in March.

Available positions fell slightly to 6.87 million from a revised 6.92 million in February, according to Bureau of Labor Statistics data released Tuesday.

We can easily see that the emphasis on job openings is exaggerated, just by looking at the JOLTS data from 2021 onward.

Since the COVID Pandemic Panic, job openings have been consistently overstated. At its 2022 peak, the fictitious job openings were more than double actual hiring.

While job openings moved down slightly, when we look at the data since 2021, there is a distinct “bottoming out” of the job openings curve. Hiring and separations also are near the levels they were at in January 2025: 5-5.5 million hires and 5-5.5 million separations.

Job openings, hires, and separations have all trended down since 2022. Through 2025 into 2026, that trend has flattened out considerably, consistent with the data finally having established a floor. The March hiring data is an increase off that floor level.

That is the sort of trend turnaround that would signal the jobs recession that has bedeviled US labor markets since 2023 is at last coming to an end.

Certainly, that is the hope of Navy Federal Credit Union Chief Economist Heather Long.

“Is the hiring recession finally over? There are encouraging signs,” Heather Long, chief economist at Navy Federal Credit Union, wrote in an e-mail.

“The big concern is the war in Iran could halt that much needed progress in the labor market,” she wrote.

What is clear from the data is that net hiring in March was consistent with the growth in payrolls per the Employment Situation Summary.

Given that both reports are produced by the Bureau of Labor Statistics, we should expect some convergence, and might even view that convergence as an indication of statistical bias. At the same time, during last summer the two reports varied significantly, demonstrating that convergence was not a given.

For the past few months, however, the JOLTS and ESS reports have printed very similar results.

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Sectors Advanced In March

Even more encouraging than corporate media and Wall Street “experts” belatedly conceding that the jobs recession has been real is the broad base for the net hiring surge.

Manufacturing, which has been hemorrhaging jobs for over two years, saw a jump in net hiring.

Construction, while printing cooler net hiring than in February, still turned in a fifth straight month of positive net hiring—the first time since October 2024 that has happened.

Trade, Transportation, and Utilities, a major service sector, rebounded from February’s job losses to show net hiring gains.

Professional and Business Services showed continued recovery, printing a fourth consecutive month of positive net hiring.

Healthcare, which has carried more than a few jobs reports, rebounded from a weak February to have a strong March.

Leisure rounded out the service sector also by showing a rebound from a horrible February, with its third best net hiring gains since the start of Trump Administration 2.0.

Every sector of private employment showed some measure of improvement in March. Such breadth in job growth is another reason to consider the possibility the jobs recession is ending. Broad job growth is an actual indicator of robust jobs markets, where hiring is strong everywhere rather than being concentrated in one or two industries.

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PMIs Show Strength In Manufacturing

The JOLTS data paints an optimistic picture, and some might say too optimistic. The growth in manufacturing jobs, for example, is at odds with the Manufacturing Employment PMI data from the Institute for Supply Management, which shows the sector still contracting on jobs.

However, the overall Manufacturing PMI from ISM has been strongly in expansion territory since the beginning of 2026.

However, we should also note that the ISM Services Employment PMI also prints worse than the overall Services PMI.

The overall Services PMI, however, shows consistent expansion in services since the start of 2025.

The employment components of the ISM PMI data gives us reason to doubt the JOLTS report, but the overall PMI shows industries expanding, a condition consistent as well as necessary for expanded net hiring.

The PMIs give us reason to be skeptical, but also reason to hope that jobs markets are starting to improve at long last.

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The End Of The Jobs Recession?

One month does not make a trend, and we should take care not to read too much into the strong JOLTS data for March.

We should acknowledge, however, that the JOLTS data for March is strong.

The JOLTS data for March is strong across the board, a rising job tide that is legitimately lifting all job ships.

Strong job growth—strong actual hiring and not merely a tantalizing promise of a job “opening”—is an indication labor demand picked up in March.

Growing labor demand is essential to having improved gains in wages and earnings. The greater the actual pace of hiring, the greater the real demand is for workers, and the greater the pressure to bid up wages across the board. Just as scarce supply increases prices for goods and raw materials, scarce labor supply increases wages.

With hiring having trended down since 2022 before showing signs of bottoming out during 2025, we have not seen strong labor demand, meaning we have not seen strong wage pressures, and so we have not seen the level of robust wage gains many sectors need to see to finally catch up to the effects of the 2022 hyperinflation cycle.

With March data looking strong, the next question naturally turns to the upcoming April jobs numbers. Will the second month of war with Iran show continued job growth?

Will the dislocations and price shocks from Iran illegally closing the Strait of Hormuz and disrupting 20% of global oil supply show their full effect by suppressing job growth, choking off the potential jobs recovery even before it has a chance to get started?

The war with Iran made its presence felt in March, with pronounced energy price shocks driving both consumer price inflation and factory gate inflation. Those shocks did not make their presence known in the March jobs data.

Is April the month where the dislocations reverberating out of the Persian Gulf start to impact employment here in the US? Or is a jobs recovery underway capable of powering past those dislocations?

March was a strong month for jobs in this country. If April is even close to the same despite the headwinds of war, we may plausibly begin to consider the jobs recession coming to an end at long last.

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From the preceding month, the PCE price index for March increased 0.7 percent. Excluding food and energy, the PCE price index increased 0.3 percent.

From the same month one year ago, the PCE price index for March increased 3.5 percent. Excluding food and energy, the PCE price index increased 3.2 percent from one year ago.

Everyone who was not comatose was already aware that energy prices were soaring and knew the reason why—Iran disrupting Persian Gulf oil flows by closing the Strait of Hormuz. The US war with Iran is the reason Wall Street projected year on year inflation per the PCEPI would be 3.5%, and for once Wall Street was spot on.

The suddenness of the war and of Iran’s strategic response to close the Strait of Hormuz left the usually highly accurate Cleveland Fed’s inflation nowcast a few steps behind the curve, with its projections for both headline and core year on year inflation 0.1pp below the actual print.

Like the earlier CPI report, the PCE data confirmed that inflation has returned to the US economy.

Yet the data was not without a few bits of silver lining. While energy price inflation surged, prices in other areas rose substantially less, or even declined.

Energy price inflation is real. Other inflation…not so much.

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Not Quite The End Of “More Of The Same”

The Personal Income and Outlays report runs nearly a full month behind, so by the time we had the February data Operation Epic Fury had been headline news for nearly a month. The news from the Middle East made it clear that there was going to be a significant energy price shock in the March data. The news from the Middle East was why my assessment last month was that the February PCE data marked the end of “more of the same.”

Even when I first read the BEA’s report yesterday morning, that assessment appeared to be confirmed. However, that assessment was not entirely true.

Driven by energy prices, headline inflation did rise year on year, which was completely expected.

Core inflation also rose year on year, but the trend line was in keeping with prior months. Operation Epic Fury did not add new inflation pressures to core inflation.

One “more of the same” aspect of the March data was that core inflation actually eased month on month in March.

While consumer price inflation has been trending up year on year for both the headline and core metrics in the PCEPI, since January core inflation month on month has gotten cooler, dropping from 0.42% in January to 0.29% in March.

Not only did Operation Epic Fury not add new inflation pressures, it also did not sustain some of the inflation pressures already present.

As it turned out, past energy prices, the PCE data actually does contain “more of the same”, with several previous months’ trends being continued.

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Energy Rose, But Food Fell

Headline inflation surged in March because energy price inflation surged—that much is obvious.

With oil prices up 33% on the month, how could energy prices not surge?

The surge was helped along by both gasoline and diesel retail prices having a violent trend reversal to also rise 36% and 42% on the month.

What did not help headline inflation move skyward were food prices. Food prices printed deflation month on month in March.

With food prices having shown inflation through the winter months, seeing the food subindex decline is a welcome change.

Even though energy prices have a tendency to permeate all other prices, food prices are the first indication that the inflationary pressures brought on by Iran mining the Strait of Hormuz have not moved beyond energy prices…yet

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March Was Nondurable Goods’ Month To Rise

In the February data, looking past the headline numbers we saw that durable goods surged significantly. In March, it was non-durable goods’ turn to take off.

However, there is little doubt that energy goods drove most if not all of that increase.

That is what an 11.6% rise in energy goods and service prices will do to the PCEPI subindices.

That extreme surge in energy pricing also highlights a point of particular concern. Either despite a nearly 12% rise in energy goods and services pricing or because of it, real expenditures on energy goods and services declined in March.

People spent more on gas at the pump in March, but in real terms they bought less gas. While this is a somewhat predictable consequence of a price shock, this is also illustrates how sudden price shocks can lead to stagflation: instead of the rising prices being the consequence of rising consumption, rising gasoline prices have produced decreasing consumption. What normally acts as a brake on consumption for March energy prices acted as a suppressant instead, preventing rather than limiting consumption growth.

We see further evidence of this in the cooling of growth month on month in real personal consumption expenditures for March.

That real disposable personal income declined again in March does not help further any narrative of substantive economic growth.

When there is no growth in real disposable personal income, there are not going to be many prospects for sustained consumption growth. Consumption growth without income growth invariably hits a wall.

One data point that unfortunately is very much “more of the same” is the continued long-term decline of real disposable personal income year on year, which is accompanied by a somewhat more problematic downward trend in real personal consumption expenditures.

It is trends such as these that force us to mention “stagflation” with regards to the energy price shocks from the war with Iran. These are trends which suggest consumption growth is weakening in this country, and a sudden surge in energy prices can very easily suppress growth further.

When inflation is the proximate cause of absolute demand destruction, that is when we are starting to see stagflation.

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Powell Remains Clueless About The Data

These key trends in real disposable personal income and real personal consumption expenditures also serve as yet another rebuttal to outgoing Federal Reserve Chairman Jerome “Too Late” Powell’s stubborn silliness in refusing to understand the data he pretends to study, as we saw from his final question during Wednesday’s post-FOMC press-conference.

Thank you, Chair Powell. Richard Escobito with CBS News.We’ve talked a lot about gasoline prices and even you mentioned airline ticket prices, both of which are up dramatically because of the war in Iran. And so I wonder, are you seeing that way down consumer spending in other parts of the economy and if so how worried are you that that will be a drag on growth.

Chairman Powell: you don’t see you don’t see it in spending yet you really don’t I mean as one of your colleagues said the economy has been resilient it really has not just this time but it’s been remarkably resilient for some years now. The U.S. economy has just powered through shock after shock, and consumers are still spending. And that’s what the banks will tell you, credit card companies will tell you, the retail sales numbers that we got most recently. People are still spending. And, you know, how long can that go on in a world where, if gas prices were to go up a bunch more, that’s taking otherwise spendable money out of people’s pockets, but right now we don’t actually see much slowdown yet—certainly none from this—but you think logically you will, because people have a certain amount of money they’re spending. If they’re spending 25% more in gas or something like that, then you know that’s going to come out of other spending. But again, we don’t see it yet.

Richard Escobito: One last thing. You mentioned those economies in Southeast Asia that are particularly dependent on petroleum, they make a lot of the stuff that American consumers buy. So was there any discussion today about whether or not those costs getting passed along to consumers is a real concern, and whether or not that might push up inflation?

Chair Powell: So all of those things are in or are in the models that, that we use to calculate inflation. So, you know, they’re, they’re just parts. You can ask about anything like that, and they are. They have a place, the staff has a place where they’re looking at that and pricing in, what will happen with higher prices and that kind of thing. So it’s there. The effects are not that big yet. You know, we’re a huge economy. The import sector is only 10% of the economy. So we’re not like a European country where 50% of the external—of GDP—is in the external sector. We’re also, you know, as I mentioned, we’re an oil exporter. So we’re not feeling the same kind of pain and we’re not likely to feel the same kind of pain that economies in Western Europe and certainly in Asia are feeling.

What Powell conflated in his word salad answers was nominal vs. real spending. Even looking at just energy goods and services, while in Powell’s world people are “still spending”—meaning they are spending more money on energy—in the real world they are buying less energy.

As consumers know only too well, inflation means you pay more but consume less.

Will the exposure of Southeast Asian manufacturers to energy price and supply shocks have a secondary effect on the US economy? That is a very real possibility. With regards to China it may even be a probability, as the data shows that China is already being hit hard with multiple materials pricing shocks across the whole of its manufacturing sector.

Arguably, we are already seeing the consequence of Asian producers passing on increased costs to American consumers, as imports were an outsized drag on GDP for the first quarter.

Imports are treated as a reduction in GDP, so an increase in imports—specifically, an increase in the dollar value of those imports—is a decrease in GDP.

Did higher producer prices push the dollar value of imports up in March? The broad GDP data does not let us answer that question definitively, but it is a question, and one that is likely to gain considerable relevance for April and beyond.

Powell did get one thing right: The US is better positioned than other countries to grapple with energy price shocks. We can see evidence of that just in the movements of diesel prices in Europe, Asia, and the United States.

Energy prices are up everywhere, but they are up more particularly in Europe.

Will importers pass along higher prices? Given the magnitude of price increase for a number of inputs, as well as for transportation both of people and cargo, we must assume that, unless oil prices return quickly to pre-war levels, all importers eventually will pass along at least some of their cost increases.

As we’ve seen just with energy goods and services, when prices are passed along, part of the consumer response is to buy less.

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Stagflation A Rising Risk

While Jay Powell dismisses the potentials for a stagflation crisis within the US economy, the data has shown there have been significant potentials, needing only an inflationary shock to activate them.

Stagflation has quickly become a global concern in the wake of Iran’s closure of the Strait of Hormuz.

The war in the Middle East will likely affect the global economy and the United States, whether it continues for a short or long term, because of disruptions in the oil market that could trigger inflation and spur a recession, warn experts, economists and the International Monetary Fund.

Widespread stagflation could be the result of the war because of the long-term closure of the Strait of Hormuz, said Mohammad N. Elahee, a professor of international business at Quinnipiac University in Hamden, Connecticut.

It quite likely is a present crisis in China.

At present, the impacts to the United States from the closure of the Strait of Hormuz are still mostly limited to energy prices. We do not see significant price rises from non-energy goods and services—yet.

That word “yet” is going to be the watchword for how inflation and the overall economy evolve over the next few months. Whatever impacts we do not see right now, we may very well see next month or the month after.

Because we do not see all the impacts just yet, we should be cautious about assuming there will be no impacts, or less impact. We should be equally cautious about assuming the impacts will simply be price rises.

Proper understanding of the data in light of the war with Iran hinges on remembering that the stagflation phenomenon occurs when sudden price shocks collide with weak economic growth. Because price shocks are driven by the supply side rather than the demand side, the resulting inflation compels reduced consumption and economic contraction to bring supply and demand back into approximate equilibrium. When inflation is driven by demand side pressures, the result is constrained consumption and economic restraint.

If we see job markets soften, if real personal expenditures for any goods and services decline, we are entering the beginning stages of a stagflation crisis.

Will we enter those beginning stages? We won’t know the answer to that until it happens. That much of my assessment of the February PCE data remains very much on the table:

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”.

The March Personal Income and Outlays report confirmed what we saw in the March Consumer Price Index report: we have energy price inflation and lots of it. We do not have much inflation in other parts of the economy right now.

We are going to see elevated energy prices again in April. How much we see either inflationary impacts or stagflationary impacts beyond energy prices remains to be seen.

Beyond energy price inflation, the fog of war still surrounds the economics of wartime.

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

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

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

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

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

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

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

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Core Producer Price Disinflation

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

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

Even month on month saw a decline in core inflation.

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

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

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

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Even Energy Was Cooler

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

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

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

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

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

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

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

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

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

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

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Not All Fuel Prices Are Equal

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

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

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

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

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

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

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

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

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

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Goods Prices Surged, Service Prices Sagged

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

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

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

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

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

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Good News For Fertilizer

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

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

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

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

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

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

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

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

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

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A Look Ahead?

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

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

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

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

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

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

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

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

If.

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

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

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

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

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

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

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

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

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

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Headline Inflation Rose On Energy Shock

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

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

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

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

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

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

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Outside Of Energy, Inflation Cooled In March

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

Food prices actually dropped in March.

Inflation cooled for services.

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

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

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

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

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

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Is The Economy Heating Up Or Cooling Down?

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

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

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

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

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

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

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

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

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

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

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

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

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

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The Job Recession May Not Be Over

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

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

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

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

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

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

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

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Is This Stagflation?

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

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

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

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

Consumption growth has been softening.

Investment growth has been volatile but broadly declining.

Imports and exports have been declining.

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

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

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

That is the stagflation scenario.

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

That is the inflation scenario.

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

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

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

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

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

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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.