by Hubert Marleau, Market Economist, Palos Management
Economic indicators released last week by the Bureau of Labor Statistics revealed that the US business, despite its apparent economic inequality, is enjoying “Goldilock” performance: inflation is failing, employment is rising, and productivity is accelerating.
First, progress toward the Fed’s 2% inflation target fad been slow, but meaningful even though 90% of the tariff burden fell on U.S. consumers and businesses, according to research published by the NY Fed. In this connection, the sticky-price CPI remains elevated, disinflation has come from sharply lower energy prices, improved shelter costs and productivity improvements. As a result, the CPI rose 2.4% in January from a year earlier, much cooler than the 2.7% recorded in December and lower than expected by a consensus of economists.
Second, January payrolls rose 130,000 in January, a welcome upward surprise, with private jobs up 172,000. Thanks to very healthy gains in healthcare and social services, tap the unemployment rate down to 4.3%.
Third, aggregate weekly hours worked in private industries rose 0.4% m/m in January, while average hourly earnings also increased 0.4% m/m, concluding that the so-called “Earned Income Proxy” jumped 0.8%, solidly above the January inflation rate, suggesting that the real GDP started Q1/2026 with a bang.
What is significant is that these new data points have favorably nudged the “Sahm Rule” - a real-time evaluation of the business cycle - away from a recession forecast and the “Misery Index” - a determinant of how well the economy is doing - closer to the optimal point.
In this regard, the rolling panics caused by the AI disruption risk is perhaps indiscriminately overdone and
P.S.1 The Sahm Rule is a heuristic measure used to detect early signs of a recession. It states that when the 3-month moving average of the national unemployment rate rises by 0.5 percentage points or more above the low point over the past 12 months, it indicates that the economy is likely in the early stage of a recession. It currently stands at 0.1%.
P.S.2 The Misery Index is calculated by adding the seasonally adjusted unemployment rate to the annual inflation rate. Its optimal position is 6.5 with an inflation content of roughly 30%. It presently stands at 6.7 with an inflation content of 36%.
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