Finally the big picture: We're way ahead of where CBO expected to be prior to COVID.
13.03.2026 12:55
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Finally the big picture: We're way ahead of where CBO expected to be prior to COVID.
The big negative was government. The government spent money only a bit below normal in Q4 but got much less for it because of the shutdown. This is recorded as a price increase.
Consumption.
The better signal is real final sales to private domestic purchasers. This is the growth of consumption plus fixed investment. It was up 1.9% (revised down from 2.4% in the advance estimate). The main difference from GDP is excluding shutdown-affected government.
Fourth quarter GDP revised down to a 0.7% annual rate (originally 1.4%).
Broad story still consumption reasonably strong, investment mixed and huge volatility in net exports.
And shutdown subtracted ~1pp from growth, something that will be added back in Q1.
P.P.P.S and then onto other things: Here is a table summarizing the information from the different measures I showed graphically earlier in this thread.
The main point is that all the dispersion measures are pretty normal right now.
P.P.S. P.P.S. 2 more useful measure of dispersion (in this case really skewness): (1) the diff between mean (aka headline) inflation and median & (2) the same but healing minus trimmed mean
Both tell the same story and are almost exactly at the median of their values since 1990.
P.S. To address a question: What if the relevant part of inflation is regular, out-of-pocket expenditures like food and gasoline?
The dispersion of those has risen more than the full set but is still not unusual--is the 60th percentile of experience since 1990.
Note on the dispersion point, you see something similar with employment. The shock there is not how concentrated it is in healthcare but how unusually evenly spread employment changes have been.
(Caveat: Not updated for latest data.)
bsky.app/profile/jaso...
Even better is to compare wage growth to price growth. There you see pretty steady 1 to 1.5% real wage growth for the last several years.
(Note, ignore some of the huge changes around recessions in this picture, they reflect rapidly changing composition.)
Which is most of what you want to know about how inflation is affecting people is the overall number.
Different subcomponents or dispersions may have additional psychological weight. E.g., some evidence that gas & good matter more than other items. But also cherry-picking risks.
Over the yr through February we saw large price increases (e.g., meat +8.6% & electricity +4.8%) & declines (eggs -42.1% & gas -5.6%).
This type of dispersion may seem difficult to manage.
It's also normal. If anything, it is a bit less than the median dispersion since 1990.
Broadly this shouldn't change the Fed's stance from wait and see--with a high bar for an interest rate move. This doesn't bring us much closer or further from that bar.
A second big issue is that CPI normally runs 30bp above PCE. So normally the CPI we're seeing would be consistent with the Fed's target measured in PCE space. But lately PCE unusually running well above CPI. And is what the Fed will and should focus on.
(I should say, I expect relatively little passthrough of the Iran situation into core inflation. Although the amount depends on the choices the Fed makes.)
One big issue monetary policymakers will have to wrestle with is how to handle the Iran-related inflation. Normally would be clear they should look through it and focus on core. But with 5 consecutive years of elevated inflation need to worry about expectations.
The actual CPI was a little higher than core in February because or rising food and energy prices. Actual will be much higher than core for March given what's happened to gasoline.
The biggest part of core services being shelter. Which has moderated less than people expected but still moderated--with potentially more in store.
The broad story is the big core goods prices increases are now behind us. And core services have been relatively well behaved.
Here are the full set of numbers.
A relatively tame CPI for February which is, of course, the before times. Annual rates for core:
1 month: 2.6%
3 months: 3.0%
6 months: 2.3%
12 months: 2.5%
The Wealth of Nations - 250 years today
"imports are source of real benefits to consumers & trade expands the division of labor, raising productivity."
"kept the focus where... it belonged: on improving the lives of ordinary people."
@jasonfurman.bsky.social
www.nytimes.com/2026/03/09/o...
On the 250th anniversary of Adam Smith’s most important book, the right reduces him to “laissez-faire above all,” writes Jason Furman. Liberals “dismiss him as a highbrow spokesman for naked, antisocial greed. The truth in both cases is more interesting.”
At a moment when faith in markets is fraying & faith in governments is strained, Smith’s message is neither to worship the invisible hand nor to wish it away. It is to discipline power, defend competition & keep focus where he always insisted it belonged: on improving the lives of ordinary people. 💯
Happy 250th birthday to Adam Smith's Wealth of Nations!
Some thoughts from me (more later).
www.nytimes.com/2026/03/09/o...
In sum, January bounced on the stronger side, February bounced on the weaker side. This is a shift towards labor market worries but only a very small shift. Mostly is what a world with usual volatility around low supply growth will look like. Fed should still wait and see.
And finally, average hourly earnings were very strong in February--and generally have been strong. This is not what we expect in a softening labor market, although some of it may be composition (fewer low-wage workers working) and ECI/Atlanta (which fix composition) slowing more.
Average weekly hours flat.
Prime age EPOP down a little but remains strong.
U-6, which includes involuntary part-time, was down sharply for the second month in a row. Not sure what's going on there. Although it's not a great measure of labor market slack and is a flawed measure of labor market underutilization (counts part-time just like unemployed).