February CPI: a likely last hurrah for relatively tame consumer price increases

 

 - by New Deal democrat

Much like last month, February benefited from shelter and gas prices - for a change - pulling in the same, disinflating, direction. Needless to say, I do not expect that to be the case for March! But in the meantime, let’s look at the continued (more or less) good news.

Beginning in late December, gas prices fell below $3/gallon, and they were still under $3/gallon at the end of February. Meanwhile, as I have been pounding the table for several years, I expected shelter CPI to follow house prices to minimal YoY gains. In February, both delivered as shelter increased only 0.2%, and gas declining -0.3%. As a result YoY headline CPI came in at 2.4%, tied with January for the lowest except for one month since the pandemic, and core CPI came in at 2.5%, also tying its January reading for the absolute lowest since the pandemic.

IMPORTANT CAUTIONARY NOTE: Because the October-November kludge in shelter prices of a mere 0.1% increase for two months is still present in the YoY calculations, and will be until this coming November, this is probably continuing to lower those comparisons by roughly -0.2%. In other words, take out that kludge and YoY headline CPI would probably be 2.6%, and core at 2.5%.

But to the slicing and dicing: as per my usual practice for the past several years, let’s start with the YoY numbers for headline inflation (blue), core inflation (red), and inflation ex shelter (gold), which was only up 2.1% YoY. The below link goes to the relevant graph [Note: I expect this tech issue to be solved by the end of the week, as soon as my local tech guy has time to meet with me. Also cross your fingers that this does not happen every time Apple updates its OS]:

The good news is that all three of these measures have decreased since September. This has continued to be a significant disinflationary pulse.

As per my comment above, rent increased only 0.1% for the month, the lowest such increasse in 5 years, and owners’ equivalent rent only 0.2%, the lowest since April 2021 except for last September. On a YoY basis, rent (red) was up 2.7% and Owner’s Equivalent Rent (blue) up 3.2%, the lowest YoY increase for both since late 2021::

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1TjRm&height=490 

One of the very best things I have been telling you since way back in 2021 is that the YoY% changes in the repeat home sales indexes lead shelter CPI by about 12-18 months. It did that on the way up, and it has been doing that on the way down. YoY home price increases continue near or at multi-year lows, the FHFA at 1.7%, and Case Shiller’s national index at 1.3%. And shelter inflation has followed (additionally yesterday we found out that the median price for existing homes had increased only 0.3% for the second month in a row). The graph linked to below includes several years before Covid to show its 3.2%-3.6% range during that time:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1TjUL&height=490 

Shelter inflation has declined to *below* its pre-pandemic YoY range. Needless to say, because of the leading/lagging relationship of house prices to shelter inflation, we can expect even *further* deceleration in the shelter component of inflation during this year.

Let’s take a look at a few other areas of interest.

Although I won’t bother with a link to a graph, as noted above gas prices declined -0.3% in February. Energy as a whole increased o.3%, but for the entire last 12 months is only up 0.5%. Enjoy it while you can!

Additionally, new car prices (red) were unchanged for the second month in a row, and up only 0.5% YoY, while used car prices (gold)declined another -0.4%, and are *down* -3.2% YoY. The graph linked to below also shows  the post-pandemic trend by norming both series to 100 as of just before the pandemic:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1TjV2&height=490 

Both new and used car prices have been basically flat for the past three years. Above I also show average weekly wages for nonsupervisory workers (blue) to show that in real terms, car prices are actually *lower* than just before the pandemic (interest rates for car loans are another issue!).

Two recent “problem children,” I.e., sectors that have increased in price by 4% or more YoY, have been transportation services, mainly vehicle parts and repairs as well as insurance; and electricity and gas prices. The former is now only up 2.3% YoY. This divides into insurance, only up 0.2% YoY (not shown below), and motor vehicle maintenance and repairs, still problematic at up 5.6% YoY (red):

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1TjVt&height=490 

Electricity prices, which have become a significant problem, likely a side effect of the building of massive data centers for AI generation, declined -0.7% in February, but on a YoY basis are up 4.8%. Additionally, piped utility gas increased another 3.1% in February, and is up 10.9% YoY:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1TjWt&height=490 

As I wrote in the last few months, the electricity issue has already created a backlash, and I expect that backlash to intensify.

One new significant problem child is medical care services (blue in the graph linked to below), which increased 0.6% for the month and 4.1% YoY. The dental care component (not available on FRED) increased 1.3% on a monthly basis and hospital care (red) increased 0.9%. On a YoY basis they are up 6.5% and 7.6% respectively:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1TjXb&height=490 

There were several other minor “problem children” in the form of nonalcoholic beverages, tobacco products, and airline tickets, but all of these are small fry in the larger CPI scheme.

Needless to say, given what has been happening with gas prices in the past two weeks, I do not expect a quiet headline number in March. So enjoy this tame consumer inflation report for the second month in a row , driven by disinflating shelter and (temporarily) energy costs. It is pretty clear that no further progress is likely in the near term towards the Fed’s 2.0% target, although disinflation in the shelter component (1/3rd of the total) should continue. I am additionally concerned about the increase in medical services costs. I don’t have any particular insight into those, but if they continue they will be an important new drag on consumers, whether directly or by insurance premiums.

The “gold standard” QCEW for last Q3 strongly suggests no job growth whatsoever in 2025

 

 - by New Deal democrat

The Quarterly Census of Employment and Wages (QCEW) is “the gold standard of US employment measures. It is an actual census of 95%+ of all employers, who must report new employees for purposes like unemployment and disability benefits. Because of this, it is used for the final revisions, a/k/a benchmarks, for monthly jobs numbers, which are estimates based on surveys. Its drawbacks are that it is not seasonally adjusted, and is delayed months after the end of the quarter.

This morning the QCEW was finally updated for Q3 of last year. And there was bad news, even compared with the benchmark revisions last month.

On a non-seasonally adjusted basis, even after the benchmark adjustment, seasonally adjusted, 70,000 more jobs added during the quarter. On a non-seasonally adjusted basis, -590,000 jobs were lost (unsurprising, given big layoffs happen in July). More importantly, on a YoY basis, the number of jobs increased 0.4% from Q3 2024.

Why is that bad? Because, according to the QCEW, on an NSA basis, -787,000 jobs were lost during Q3, and on a YoY basis, the number of jobs only increased 0.1%. Which means that the nonfarm payrolls numbers, even after the last seasonal adjustment 9show below), were still too optimistic:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1ThKq&height=490 

And the YoY comparison was too optimistic as well:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1ThLu&height=490 

In my review of the 2025 Q1 QCEW, I concluded that it was “suggesting there might not have been any job growth at all this year.” When I reviewed the update for Q2, I wrote that “it seems likely there was a very small gain, but not even keeping up with prime employment age population growth, i.e., firmly supporting the increase in the unemployment rate this year. And it is still possible that there have been no net employment gains whatsoever this year.” The Q3 update once again suggests there was no job growth whatsoever last year, not even the paltry 296,000 indicated by the latest benchmark revisions.

How $4/gallon gas could take the economy from a nearly complete stall into outright recession

 

 - by New Deal democrat

So, first some bad news: my tech issue has resurfaced, so only links to graphs rather than graphs themselves, hopefully just for a day or two. Basically, unless I keep a bar up open to the blog page, Google and Apple sever their “handshake,” and I have to start from scratch to drag them back into it. Think of it as the tech version of herding cats.

And it’s a particular shame because, well, it’s always a bad day for the economy when the most exciting drama on TV is the financial channel. So today let me take a look at the state of the economy, ex-gas prices; and then what gas prices of $4/gallon or more might do to it. In that context I’ll also update an important graph on real retail sales, which were reported for January on Friday.

First, a couple of months ago I mentioned that gas prices under $3/gallon were a new, real tailwind for the economy. I showed this by dividing that cost by average hourly wages for non-supervisory workers. The resulting graph showed how much labor it required for an ordinary worker to be able to buy a gallon of gas. In January it was close to the lowest since the beginning of the new Millennium.

Here’s the link to an updated graph. Since as of last week’s report gas was just over $3/gallon, I’ve normed the result so that gas at $4/gallon divided by the average hourly wages shows at the 0 line:

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1TeXc&height=490 

The simple summary is that gas prices at $4/gallon would no longer be a tailwind, but they wouldn’t be much of a headwind either. Rather, they would be about average (compared with wages) for the past 25 years.



All things being equal, gas prices deteriorating from a significant positive for the economy to merely neutral wouldn’t be that big a deal. But all things are never really equal. 

Because the economy as of the end of 2025 was balancing just at the edge of recessionary readings. The below link goes to a graph of the four main monthly datapoints used by the NBER to determine whether or not a recession is underway - jobs, real personal income minus government transfer payments, real manufacturing and trade sales, and industrial production. Because business sales have only been updated through last November, I also include real retail sales, which as I noted above were just updated through January last Friday (declining -0.3% for the month, and -0.8% below their most recent interim peak last August). Additionally, I wanted to show the impact of AI related data center construction by removing utilities from the industrial production measure: 

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1TeZS&height=490 

All of the above metrics went basically sideways in 2025. *All* of them are below their respective peaks in various months from April through September. It’s already been an open question whether the government shutdown last autumn formed the peak of last expansion. Either the expansion just barely scraped by, or we were already in a very shallow recession.

In other words, gas prices turning from a tailwind to simply neutral, even if they don’t go much above $4/gallon, may well be enough to tip over the above metrics into outright recessionary readings.

In that regard, my final link is to one of my usual real retail sales graphs, showing how it (and similarly real personal spending on goods) typically leads employment by a number of months: 

 https://fred.stlouisfed.org/graph/fredgraph.png?g=1TeU4&height=490 

Both Real retail sales and real spending on goods were negative YoY in December, before the former rebounded to +0.7% YoY in January (because January 2025 was even worse). Jobs are only up 0.1% YoY as of last Friday’s release for February. Except for the near “double-dip” of 2002-03, going back 85 years job gains have *never* been only higher by 0.1% YoY without a recession being either imminent or already in progress.

Weekly Indicators for March 2 - 6 at Seeking Alpha

 

 - by New Deal democrat

My “Weekly Indicators” post is up at Seeking Alpha.

Unsurprisingly, the big news of the week was the skyrocketing of oil and gas prices. A little surprisingly, the US$ gained as a “safe haven” or perhaps “least dirty shirt” trade.

As usual, clicking over an reading will bring you thoroughly up to date on the economy, and reward me with a penny or two for my efforts.

February jobs report: Main Street lays an egg

 

 - by New Deal democrat

I described last month as “the month the birds came home to roost…. In particular, the *entire* gains over the past year were reduced from 584,000 to 181,000 - an average of only 15,000 jobs gained per month.”

Well, this month the nesting birds, to butcher Edgar Allen Poe, started screeching “recession.” 

Below is my in depth synopsis.

HEADLINES:

• -92,000 jobs lost. Private sector jobs declined -86,000. Government jobs declined -6,000. The three month average declined to a puny +6,000.
• The pattern of downward revisions to previous months continued. December was revised downward by -65,000, and January was revised downward by -4,000, for a net decline of -69,000. 
• The alternate, and more volatile measure in the household report, declined by -185,000 jobs. On a YoY basis, this series *DECLINED* -426,000 jobs, or an average of -35,000 monthly.
• The U3 unemployment rate rose 0.1% to 4.4%, which is where it was in December. 
• The U6 underemployment rate declined -0.1% to 7.9%.
• Further out on the spectrum, those who are not in the labor force but want a job now rose by 166,000.

Leading employment indicators of a slowdown or recession

These are leading sectors for the economy overall, and help us gauge how much the post-pandemic employment boom is shading towards a downturn. These were mainly negative:

• The average manufacturing workweek, one of the 10 components of the Index of Leading Indicators, rose 0.1 hours to 41.5 hours, and is now down only -0.1 hour from its 2021 peak of 41.6 hours.

• Manufacturing jobs decreased by -12,000, the 11th decline in the last 12 months. It is now at a 3+ year low.
• Truck driving, which had briefly rebounded early in 2025, declined another -500.
• Construction jobs declined -11,000.
• Residential construction jobs, which are even more leading, rose 2,400, continuing the trend of stabilizing since last April.
• Goods producing jobs as a whole declined -25,000.. 

• Temporary jobs, which have declined by over -650,000 since late 2022, declined again this month, by -6,500, but remained above their post-pandemic low set last October.
• The number of people unemployed for 5 weeks or fewer rose 153,000.

Wages of non-managerial workers 

• Average Hourly Earnings for Production and Nonsupervisory Personnel increased $.09, or +0.3%, to $32.03, for a YoY gain of +3.7%, its lowest YoY% gain since the pandemic. Nevertheless, this continues to be significantly above the YoY inflation rate.

Aggregate hours and wages: 

• The index of aggregate hours worked for non-managerial workers declined -0.2%, and is up 1.2% YoY, about average for the past two years.

• The index of aggregate payrolls for non-managerial workers rose 0.1%, and is up 4.7% YoY, also about average for the past two years.

Other significant data:

• Professional and business employment declined another -5,000. These tend to be well-paying jobs. While this remains above its October low, it remains lower YoY by -0.4%, which in the past 80+ years - until now - has almost *always* meant recession.
• The employment population ratio declined -0.1% to 59.3%, vs. 61.1% in February 2020.
• The Labor Force Participation Rate declined -0.1% to 62.0% , vs. 63.4% in February 2020.

SUMMARY

As I wrote at the outset, this was a recessionary report, partly because of the monthly change, and partly because of the sideways to downward trend in employment it represents since last spring.

There were some bright spots, including another increase in the average manufacturing work week, and residential construction jobs, which like much other data in the housing sector, shows signs of “green shoots,” i.e., that the bottom is being or has been formed. The U-6 underemployment rate* also declined slightly. And hourly wages continued to increase at a good clip.

But the vast majority of leading and coincident indicators in the report were negative: manufacturing, construction, trucking, and temporary help employment all declined, as did the goods-producing sector as a whole. Total hours work declined, and it is almost certain that once we get the inflation report, we will see that real aggregate payrolls also declined. The employment/population ratio* and labor force participation rate* declined. Revisions continued to be negative, and the unemployment rate*, against expectations, increased slightly.

[*These figures come from the Household Survey and may have been affected by the annual revisions, which were delayed a month and were reported this morning. But they were applied to the January numbers, so the month over month changes should not have been affected.]

Finally, please note that these figures are from *before* the war with Iran and its affect on gas prices started - so be prepared for worse in the next several months.

To conclude by returning to my opening comments about birds coming home to roost: this month Main Street, in the form of jobs, laid an egg.