Inflation came in hot. You can see tariffs are driving the price of goods higher, while the price of non-housing services isn't falling to compensate.

Shelter had a high month as well, but that is likely noise given their more general downward trend. The tariffs are here. /1 Three-month core inflation pops to 3.6%, among the highest its been in a while (and in years if you exclude January bumps). Not the direction the Federal Reserve wants to see as the labor market is quickly slowing since Liberation Day. /2

It's a bad number. Just 22,000 jobs, and with revisions June went negative to -13,000.

Worse, deeper into the data you can see that the theory of Trumponomics is failing. It's not too late to change course, but it would require dramatic action they won't take.

Let's dig in. /1 They just narrowly dodged a 4.3% unemployment rate last month and got it this month, but these aren't rounding games. You can see a steady increase over the last two months.

Maybe it's noise, but it is the highest in years and, given everything else we'll see, it's worrying. /2

Core inflation was above expectations and had its highest print since January.

But I don't think that really conveys how much more elevated it is in 2025, as shelter disinflation continues to cover up higher services and goods.

This is worrying. Let's dig in: /1 Here's core broken down by goods, shelter, and services. Goods prices are increasing from a negative trend, as expected from tariffs.

But non-housing services have picked up too, masked by the expected measured housing disinflation. /2

Job revisions have a well-known strong cyclical component; as the economy slows it is more difficult to estimate business births and deaths.

Here's average revisions as % employment for 18 months before and after a recession, from 1979 to 2025. It's negative in the slowdown. /1 Or consider the last decade. Essentially zero pre-covid.

Sharply negative under lockdowns. But very positive when the economy was gaining millions of jobs back in 2021, as the models couldn't keep up with recovery. But then negative as that recovery leveled out in 2023-2024. /2

This is a bad jobs report. 73,000 jobs would have been worrisome to begin with, but deeply negative revisions to the previous two-months wiped out much of the recent gains. 2025 looks a lot worse the further we get into it.

There's a lot to cover, let's dig in. /1 First: revisions. Negative revisions naturally occur at the end of recoveries/economic turning points from complexities of estimating business births, deaths, and seasonal adjusts.

While it was negative in early 2024 alongside strong jobs growth, it is collapsing now in 2025. /2

The GDP numbers for the 2nd quarter, like in the first, are being driven by wild swings in exports and inventories.

While GDP rebounds for a still weak 1.22% in the first half of 2025, under the hood final sales to private domestic purchasers looks quite weak. Let's dig in. /1 You can see this in the components of GDP, where investment (driven by inventories) and net exports are doing wild, probably historically unique, things.

But look at the last two consumptions prints. People are spending less, and it's a notable drag. /2

Solid jobs numbers today. Headline unemployment unchanged, and 139,000 new jobs.

But a few things I'd flag for underlying cooling: (1) Last two months revised down -95K. 2-month monthly revisions have averaged -63K in 2025. So reasonable chance this ends up under 100K. /1 The rounding gods were kind this month, with unemployment ticking up to 4.24 percent. You can see the slow increase over the past few months.

At that slow but steady pace you are at ~4.7 percent unemployment at the end of year, consistent with some forecasts on tariff impact. /2

As we risk stagflation and chaos to bring back manufacturing jobs, I took a look at how manufacturing workers reacted to the hot labor market of 2022-2023.

A result that surprised me: it turns out they were the industry with the highest increases in their quits rate. 1/4 Link here, which builds off the recent manufacturing jobs polling and then NEC director Gary Cohn's 2018 (incorrect) dive into JOLTS data.

2/4
mikekonczal.substack.com/p/people-reall…

Quits and hires rate are now a notable step below 2019 levels.

Quits does better predicting labor market conditions and there's an increasing trend in job openings across the 21C. So, at this critical moment, worth weighing quits more when we are watching labor market. /1 If the concern is in (wage-inertial?) services, hires and quits levels are also below there, and have been falling consistently.

There has been a lot of shifting and upgrading in the labor market during the recovery, and that process has played itself out. Time to reassess. /2

6-month core PCE: 1.86%
3-month core PCE: 1.52%

A year ago these numbers were above 4 percent. I understand the yawns and the sense it's old news, but this is just a massive and wild achievement. Let's dig in and discuss the last mile and what just happened. /1 Last mile: weighted contribution to overall inflation by major categories over past 6 months.

We are at 2%. Core goods pull that down about -0.5%; easy to see how to replace that. For all the fears on non-housing inflation, it's only pulling up 0.2% compared to 2018-2019. /2

Just to go back to this for a minute, worth flagging that in the current New Keynesian grad textbook:

whether end of a transitory cost-push shock causes the price level to go back to previous trend (i.e. negative inflation) is a policy choice by the Fed; it’s not inevitable. /1

https://twitter.com/NickTimiraos/status/1747983667211714810

That model isn’t ideal - there’s no long-term costs to recessions - but it gives a sense. And given that we didn’t force a recession in response to reopening while long-term inflation expectations remained anchored, the choice looks like the right one. /2

https://twitter.com/paulkrugman/status/1748328927892848999

Before we dig into an interesting upside CPI report, we now have the full 2023 data now.

And we can see, using the best proxy we have for core inflation going back to the 1940s, that 2023's disinflation looked like the post-WWII period, not the 1970-80s one. Remarkable story.
/1 Big story is leveling out of core CPI inflation over the past 5 months in the low 3 percent range. I'm curious how next month's retroactive seasonal adjustment impacts this, and throughout the past years we've seen these leveling out then down shifts during the disinflation. /2

And there it is: even though we're well into the recovery, and have had unemployment under 4 percent for 2 full years, 2023 had the 5th highest job growth in the 21st century. (6th as a percent of employment.) Note the contrast with the 2010s below.

Let's dig into December. /1 You can see job numbers having more variance over the past six months, especially coming off the big job growth the past two years. That means we should be more careful not to read too much into any one month.

And stepping back, this is the job gain rate of a soft landing. /2

Well #JOLTS was fun while it lasted. Here's quit rate vs inflation over the past ~20 years. November 2023 is hard to read, because it's so in the middle of the best values.

There's nothing to see here other than a solid labor market alongside big disinflation.

But but but... /1 But but but....job openings!

Whatever relationship is there, we've completely slid off of it. We all had a blast debating whether 'the Beveridge Curve is steep so declines in v/u could come mostly from v' it....was a nonstarter? We just got the disinflation without it.

Why? /2

I'm open to it, the arguments will evolve, but here's some reasons - empirical and theoretical - why I don't find the idea that a nonlinear Phillips Curve, one using job openings over unemployment for demand, is convincing against the evidence we have for disinflation in 2023. /1

https://twitter.com/GautiEggertsson/status/1741195631207518651

My key one: The disinflation we saw was simply too big to fit into nonlinear estimates for v/u's effects.

In @GautiEggertsson paper, if I follow it correctly, you need v/u to drop from 1.9 to at least 1 to get -3% core CPI. But v/u is currently 1.5.
/2

https://twitter.com/GautiEggertsson/status/1741195630062551130

Wow. And there you have it. Six-month core PCE is at 1.87 percent, under the Federal Reserve's 2 percent target.

I was cautiously optimistic about 2023 - I have some 'soft landing' blog posts from a year ago - but this disinflation is far beyond what I imagined. Let's dig in. /1 I still automate this graphic but took it out of active circulation, but it is worth sharing. We focus on 3-, 6-, and 12- month changes for good reasons, the monthly data is noisy.

But look at the sharp drop-off in monthly this year. It's a giant cliff, and it's just wild. /2

I understand why everyone is nervous, I am too, especially going into this morning's jobs report.

But this print is basically exactly what you'd want and expect to see from a soft landing, where inflation is falling because the difficult reopening process is over. /1 Wage growth is in line with what we'd want for lower inflation. Nobody should reevaluate anything based on one month; over the last several we're seeing a slow deceleration consistent with other labor market indicators. /2

Before we dive into this excellent PCE inflation print, let's step back and look at inflation's slowdown against the unemployment rate.

This disinflation is simply unprecedented in the past 60 years. But the supply shock challenges from reopening were equally unprecedented. /1 Look at it again, just with values less than 0, so deceleration in year-over-year change.

If you want to know why economists thought you needed 8+% unemployment to slow inflation, this historical graphic is why. But it also tells us this time was different.

Now let's dig in. /2

Quits remain at 2019 levels, hires are below. This, to me, is the central labor market JOLTS story. The labor market is not overheated from the POV of searches and mobility. /1 Why not job openings? Job openings have a time trend, but more the idea that there's a nonlinear relationship, where v/u must fall for inflation to lower, has not panned out in 2023.

But there's a worse problem.... /2

Interesting. Nominal ECI wages are steady or slightly higher in Q3. This is ~1% higher than the job number's average hourly earnings, which is more between 3.5 and 4% now.

(There is one thing in this data the screams "supply shock" I'll get to in a minute.) /1 For what it's worth, the Federal Reserve's favorite measure - private wages excluding incentive paid occupations - is much lower for the quarter, even near prepandemic levels. /2

Out with a cold (solidarity to all others with small kids getting colds left and right) so no deep PCE dive this morning.

This month, like CPI, saw a hit back up. But trend remains downward, with 6-month core PCE rate now under 3% (!) 2 times in a row. That's great progress. /1 It's great for inflation to come down, but last 3 months might have been too low given fundamentals. We'll see. But this range is what we want.

Most wild thing is that last month's core PCE was revised down to 1.4% (from 1.8%); that puts last month's 3m right at 2% target. /2