Reading the U.S. economy, one indicator at a time.

Labour market strength and inflation are connected through wages and the Fed's dual mandate. Key cross-topic links:

• A tight labour market — low Unemployment Rate, high job openings, rising Nonfarm Payrolls (NFP) — tends to push wages up via Average Hourly Earnings (AHE) and Employment Cost Index (ECI).
• Persistent wage growth feeds into business costs and eventually consumer prices, showing up in CPI and PCE.
• The Federal Reserve watches both sides: maximum employment (labour market) and 2% inflation (Core Personal Consumption Expenditures Price Index (Core PCE)). A hot labour market alongside elevated Core Personal Consumption Expenditures Price Index (Core PCE) is the classic setup for rate hikes.
• When Initial Jobless Claims rise alongside falling Core Personal Consumption Expenditures Price Index (Core PCE), it signals a cooling cycle — labour weakening before inflation has fully been tamed.
• Business Activity → Labour Market: A sustained drop in ISM Manufacturing PMI New Orders often precedes a slowdown in Nonfarm Payrolls (NFP) by 1–3 months, as firms cut orders before cutting headcount.
• Business Activity → Inflation: When PMI Prices Paid sub-components rise alongside elevated Core Personal Consumption Expenditures Price Index (Core PCE), it signals that input cost pressure is feeding through to consumer prices — a hawkish signal for the Fed.
• Leading signal chain: ISM Manufacturing PMI and S&P Global Manufacturing PMI (New Orders) → Nonfarm Payrolls (NFP) → Unemployment Rate → Core Personal Consumption Expenditures Price Index (Core PCE) → Fed rate decision.
• Sentiment → Spending: Michigan Consumer Sentiment drops typically precede weakness in Retail Sales and Personal Spending by 1–3 months — soft data leads hard data.
• Expectations → Wages → Inflation: Rising Michigan 1-Year Inflation Expectations can trigger wage demands, which feed into Average Hourly Earnings (AHE) and eventually Core Personal Consumption Expenditures Price Index (Core PCE) — the wage-price spiral channel.
• Income → Spending capacity: Personal Income growth above Core Personal Consumption Expenditures Price Index (Core PCE) inflation means rising real purchasing power, which supports Personal Spending and makes Fed tightening harder to justify stopping.
• GDP → All topics: Real GDP growth is the final scorecard that the leading indicators (PMIs, jobless claims, consumer sentiment) were already predicting. Weak C in GDP confirms what Retail Sales and Michigan Consumer Sentiment signalled weeks earlier; weak I confirms what ISM Manufacturing PMI New Orders flagged.
• Full leading signal chain: Michigan Consumer Sentiment + ISM Manufacturing PMI New Orders → Nonfarm Payrolls (NFP) + Retail Sales → Core Personal Consumption Expenditures Price Index (Core PCE) → Gross Domestic Product (GDP) → NBER recession call.