The BLS announced that the Consumer Price Index (CPI) fell 5.0% on an annualized basis after rising 5.80% in May. The decline was largely due to energy prices, with energy commodity prices falling almost 10%. The year-over-year number came in at 3.46%. The large discrepancy between the monthly annualized number and the year-over-year number highlights the reason for our preferred trend measure, which rose 2.44%. That is, it damps the highly volatile monthly number while responding faster to changes in trend than the year-over-year measure.
The core CPI measure (which excluded food and energy) showed almost no decline, dropping 0.20%. The year-over-year increase was 2.6% and our trend measure grew 1.94%.
While the reduction is certainly welcomed, it appears to be short-lived. The June decline saw an easing in energy prices due to a “potential” scaling back of the crisis in the middle east. More recently, the battles have escalated and so too energy prices.
The BLS announced that payroll employment increased 57,000, and has been ratcheting down since March. The Dow Jones consensus forecast was 115,000. In addition, there were downward revisions over the past two months totaling 74,000. Employment in health care and social assistance grew 46,000. The largest decline came from leisure and hospitality, falling
Average hours of work remained at 34.3 for the third consecutive month. Hourly earnings rose from $37.54 to $37.64. With the recent uptick in inflation real wages have declined after several years of real wage growth.
The household survey revealed a large decline in employment, down 507,000; and the number unemployed also fell by 213,000, leading to a decline in the labor force participation rate, 61.8% to 61.5%. Taken together, these changes resulted in the unemployment rate moving down from 4.30% to 4.19%.
Another labor market indicator, the Jobs Openings and Labor Turnover Survey revealed no change in the number of job openings and hires, once again leading to more job openings than unemployed persons.
The BEA announced that the PCE price index rose 4.90% in April, down from the 8.27% March reading. The year over year number increased from 3.53% to 3.77% and our preferred trend measure rose 5.22% after a 5.38% increase in March. All well above the Fed’s 2.0% target.
The PCE price index excluding food and energy fell from 3.60% to 2.91%, the year over year number rose to 3.77% from 3.53% increase in March and the trend measure fell to 5.22% in April compared to 5.38% in March. Again, these inflation rates are well above the Fed’s stated 2% target.
In it’s second estimate of GDP for the first quarter, real GDP growth was revised down from 2.0% to 1.6%, mostly due to investment and consumer spending revisions.
The two reports don’t add much in the way of clarity as to future Fed Funds moves. The Fed-favored PCE is still solidly above the 2.0% target and the economy remains strong despite the downward revision to GDP. New Chair Kevin Warsh also adds to the uncertainty it becomes clearer what kind of Chair he will become.
The BLS announced that payroll employment increased 115,000 in April and March employment was revised up 7,000 to 185,000 and February was revised down 23,000 to 156,000.
The private sector added 123,000 jobs while the government sector shed 8,000, falling for seven consectutive months. Nearly all of the increase in employment came from the service producing sector, up 113,000.
Average hours of work rose from 34.2 to 34.3 and has been see-sawing between these two over the past few months. The increase in both private employment and average weekly hours means that total hours of work showed a strong increase. Average hourly earnings increased to $37.41 from $37.35.
According to the household survey the civilian labor force declined 92,000, the number unemployed increased 134,000 and then number employed fell 226,000. The end result was a slight uptick in the unemployment rate, from 4.26% to 4.34%. Note that, due to rounding, the BLS reported that the unemployment rate was unchanged at 4.3%.
While the establishment survey beat “expectations” and was taken as good news by the market, the household survey poured a little cold water on the outlook. Having said that, the labor market continues to exhibit more strength than weakness.
The BEA came out with two important announcements on the heels of the FOMC decision to not raise the Federal Funds Rate (good call). While the price indices were higher than the Fed’s 2% target, they were in the “what should we do now” range. That is, the members of the FOMC were debating whether to lower or keep the rate at its current level and what to say about future policy.
Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Lisa D. Cook; Philip N. Jefferson; Anna Paulson; and Christopher J. Waller. Voting against this action were Stephen I. Miran, who preferred to lower the target range for the federal funds rate by 1/4 percentage point at this meeting; and Beth M. Hammack, Neel Kashkari, and Lorie K. Logan, who supported maintaining the target range for the federal funds rate but did not support inclusion of an easing bias in the statement at this time.
The PCE price index rose 8.23% in March. Year-over-year it rose 3.5% and our preferred trend measure rose 5.30%.
The core PCE (ex food and energy) rose 3.58% on an annual basis, year-over-year 3.2% and the trend measure up 3.86%.
REal GDP
The BEA also announced that the advance estimate of real GDP for Q1 increased 2.0%. Personal Consumption Expenditures rose 1.6% and Private Investment rose 8.7% with the equipment component of investment rising 17.2% and Intellectual property products rising 13.0%. The Government sector rose 4.4%.
On a more negative note, both residential and non-residential structures investment have been in negative territory for quite some time.
Policy outlook
The real side of the economy continues a steady increase at the same time inflation has moved up considerably. It is interesting to conjecture what the Fed votes would have been had these reports come out before yesterday’s meeting. Mind you, today’s releases should not be a huge surprise to the FOMC. The Consumer Price Index release earlier this month signaled higher inflation, and economists at the Board of Governors are really good at now casting, so the National Income and Product Accounts data was almost certainly largely known.
The BEA announced that the price index for Personal Consumption Expenditures (PCE) rose 4.60% on an annualized basis, the largest increase over the past year. Our preferred trend measure increased 3.75%, the largest increase in three years. The fact that the year-over-year increase actually fell (2.83% to 2.80%), and remains low, underscores our use of the trend measure: the year-over-year measure moves slowly.
Lest one thought that the reason for the big jump in the PCE was due to the roiling in the oil/energy market, prices in the PCE bundle excluding food and energy rose 4.49% on an annualized, though fell slightly from January’s reading of 4.81%.
One area that showed a major jump was in goods prices, likely affected by the disruption of transportation. Goods prices increased 9.27% on an annualized basis and our trend measure was up 4.36%.
Meanwhile, the Bureau of Labor Statistics released the Consumer Price Index (CPI) data for March. Ugly results are seen in the overall CPI picture. On an annualized basis, the month-over-month inflation rate rose from an unacceptable 3.25% (February) to an even worse 10.89% (March). To be sure, this increase was largely driven by the energy component of the CPI. The one month (that is, not annualized) price changes were: gasoline +21.2%, fuel oil +30.7%, overall energy +10.9%. To put these numbers into perspective, the one month change in the CPI was +0.9%. The year-over-year inflation rate rose more moderately, from 2.43% (March) to 3.29% (April). Our trend measure rose from 2.76% to 5.47%.
Turning to core CPI (that is, excluding food and energy), the annualized month-over-month inflation rate actually fell from 2.62% (February) to 2.38% (March) while the year-over-year tate rose slightly from 2.47% to 2.60%. Our measure of trend inflation also fell, from 2.68% to 2.58%.
Given the increase in inflation recorded in the March CPI report, we expect that the March PCE will similarly increase. However, these increases can be directly traced to the effects of the U.S./Israeli-Iran war on global oil supply and prices. The consensus among news commentators is that the effects of these global oil shocks will be temporary: Iran will allow shipping through the Strait of Hormuz to return to pre-war levels which will increase global oil supply. Even so, the effects on prices may last months. In such a circumstance, focusing on core inflation measures is justified. Further, measures of expected inflation do not indicate lasting effects.
Obviously, the jump in prices will affect the Fed’s next rate decision, but with the strong reading in the employment numbers and the current inflation numbers we see little chance in an interest rate cut in the near future.
The BLS announced that payroll employment increased 178,000. The private sector added 186,000 while the government sector shed 8,000 jobs. Revisions to the two previous months were pretty much a wash, with January revised up 34,000 and February revised down 41,000.
The private service sector added the bulk of the jobs, increasing 143,000 with 89,900 coming from health care and social assistance.
Average weekly hours fell from 34.3 to 34.2. Combined with the employment change means that total hours fell slightly. Average hourly wa
Average hourly earnings rose from $37.29 to $37.38. Over the year earnings growth continues to outpace CPI inflation, meaning real wages have been rising since 2023.
The BLS announced that the CPI in February rose 3.25% on an annualized basis. Year over CPI inflation was 2.43% up from 2.39% in the previous month. Our preferred trend measure was little changed at 2.68% compared to the previous month. Anticipation of the war appears to have pushed up oil prices in February which may account for the 11.1% (250% annualized) monthly increase in fuel oil.
The annualized core measure (ex food and energy) fell from 3.59% to 2.62%, year over year changed little coming in at 2.47% compared to 2.51% in the previous month. Our trend measure, 2.68% was little changed from the previous month’s 2.71%.
Drilling down farther, the CPI for services less rent on shelter shows a 3.34% increase in our trend measure, although the monthly number has come down from 4.25% in January to 3.43% in February.
The Fed continues to be in a bit of a pickle. While inflation is moving in the wrong direction, there are signs of weakness in the labor market. At this time, however, keeping inflation in check is job one for the Fed and we see no convincing argument for lowering rates in the near future.
The BLS announced that payroll employment dipped 92,000. The decline was pretty widespread as there were a lot of negative signs across almost all industries. The private sector declined 86,000. Both the information and government sectors continued their long decline.
The health care industry was likely affected the employment numbers. Healthcare work stoppages increased 58.3% and the number of workers involved rose 151.9% from 2024 to 2025 — the largest increase of any industry. Healthcare accounted for 40.3% of all striking workers and ranked first in total strike days with over 1.2 million. In January 2026, 31,000 members of UNAC/UHCP went on strike at Kaiser Permanente facilities in California and Hawaii — the largest open-ended strike of registered nurses and healthcare professionals in US history. After four weeks, the union announced an unconditional return to work as negotiations moved closer to resolution.
Nearly 15,000 nurses across four New York City hospitals began an open-ended strike on January 12, 2026. Nurses at Montefiore and Mount Sinai eventually ratified new contracts, while about 4,200 nurses at NewYork-Presbyterian remained on strike as of mid-February.
Average weekly hours remained at 34.3 and average hourly earnings increased from $37.13 to $37.32 (0.4%). Indeed, over that past couple of years, real earnings have risen as year over year earnings growth has exceeded CPI growth.
The unemployment nudged up from 4.32% to 4.44%
Policy Outlook
We expect to see lots of chatter about what the FOMC should do at its next meeting. The inflation rate remains above the Fed’s 2% target. The January employment report was generally considered meh; February’s will be a cause for concern. Output growth for 2025Q4 was neither too hot nor too cold. The war with Iran adds to uncertainty. Good time to hold rates steady?
The BEA announced that real GDP increased 1.4% in Q4 and 4.4% in Q3. Consumption grew at 2.4%, the largest contributor to overall GDP growth.
Real investment increased 3.8%. Non-residential structures investment declined for the eighth straight quarter and residential investment has declined in six of the last eight quarters. The biggest drag on GDP came from the government sector, falling 5.1% and contributed -0.9 percentage points to overall GDP.
Prices
No good news for prices. The BEA announced that the personal consumption expenditures price index (PCE) increased 4.35% in December on an annualized basis. Our preferred trend measure increased 3.23%. Excluding food and energy, prices also rose 4.35% and our trend measure came in at 3.11%. Of particular note: all of the PCE-based inflation measures that we report on a regular basis are up and well above the Fed’s 2% target.
Keep in mind that the Federal government shutdown in October 2025 has delayed the release of PCE data. Prior to the shutdown, the December data would have been released at the end of January, not late February. We’ve been using a naive forecast of PCE inflation using CPI inflation data. This forecast did not do too well for December. Trend PCE inflation for December was forecast to be 2.47% (down 20 basis points from November); in fact, this measure of inflation was 3.23% (up 56 basis points). Similarly, trend core PCE inflation was forecast at 2.11% (down 39 basis points) whereas it actually rose to 3.11% (up 61 basis points). With all of this in mind, the forecast for January is: trend PCE inflation, 2.29%; trend core PCE inflation, 2.46%.
Policy outlook
Given the rise in the inflation numbers and a moderate change in GDP, it certainly seems like there isn’t much of a chance for an interest rate cut any time soon. The labor market (see below) doesn’t change that view since the report last month did not have any major surprises.
