The stock market should remain captive to developments in the Iran war this week. At the same time, concerns are developing that the US is entering into a period of "stagflation," with sluggish growth and high inflation -- a difficult scenario for the Fed and bad for stocks. This week's key US economic data are not expected to end these concerns.
However, there may be positive surprises, and there are reasons to think these concerns may be overdone. Recent data show high inflation. And, slow population growth works toward slow growth. It is not certain, however, that slow economic growth is below its longer-run trend nor necessarily bad for corporate earnings. Moreover, it is too soon to say whether a combination of high inflation and near-trend growth will persist and lead to Fed tightening.
Slow population growth appears to be behind consensus expectations for March Nonfarm Payrolls. Consensus expects Payrolls to rebound 48k m/m, after they dropped 92k in February. The Claims data support the idea of a March improvement (see table below). However, February-March Payrolls should be adjusted for strikes. Strikers impacted both months' Payroll figures, subtracting 31k from February and adding 32k to March. Strike adjusted, Payrolls would climb 16k in March after falling 61k in February, according to the consensus estimate. The Q126 average would be +27k m/m. Both the March adjusted gain and the Q126 average would exceed the +10k m/m average in 2025. So, while the expected modest increase in March is low from a longer historical perspective, it is not low relative to the more recent trend.
Indeed, last year's slow Payrolls pace was not associated with below-trend GDP Growth. Real GDP Growth was 2.0% (Q4/Q4) in 2025, in line with the Fed's 1.8-2.0% estimate of longer-run growth. The latter was associated with strong corporate earnings. So, this growth scenario is not necessarily bad for stocks.
The Atlanta Fed model's latest estimate of Q126 Real GDP is 2.0% (q/q, saar), a continuation of the 2025 growth rate. The model's estimate may be too low, moreover, as it does not seem to build in the rebound in federal government purchases coming from the shutdown's end. The latter subtracted at least 1% point from Q425 Real GDP Growth.
The consensus expectation of a 0.1% point uptick in the Unemployment Rate to 4.5%, a new high for the move up, argues for below-trend economic growth. This expectation, however, is questionable, since the Claims data do not decisively point to an increase in the Rate. A 0.1% point m/m change is within statistical noise, so cannot be ruled out, however.
Most of the latest inflation-related data are mostly high and not favorable for the Fed. Compensation/Hour and Unit Labor Costs were revised up for Q425. And, Import and Export Prices posted large increases for February. Moreover, the consensus estimate of +0.4% m/m in March Average Hourly Earnings would be the second above-trend increase in a row (trend was 0.3%). In contrast, the longer-term 5-year inflation expectations measure from the University of Michigan Consumer Sentiment Survey slipped to 3.2%, staying within its range. Contained longer-term inflation expectations is important to the Fed and holds out hope that the recent spate of high inflation figures will be temporary.
Compensation/Hour -- the broadest measure of labor costs -- were revised up in both Q425 and Q325, particularly for Q325 (see table below). It rose 6.2 or 6.3% in 3 of the 4 quarters of 2025. The q/q pace was more moderate in 2024, ranging between 4.3% and 5.8%. Nevertheless, the Q4/Q4 pace was 5.0% in 2025, not much different from the 4.9% in 2024 and 5.3% in 2023. At best, labor cost inflation can be viewed as sticky. At worst, it can be seen speeding up.
Reflecting the downward revision in Productivity as well, Unit Labor Costs were revised up sharply. The Q4/Q4 pace was 2.4%, about the same as the 2.6% in 2024. Both exceeded the 1.7% in 2023. They are slightly above the pace consistent with the Fed's 2% inflation target. Fed Chair Powell could continue to stick with his assertion that labor costs are not a source of inflationary pressure, but these revisions could temper his view.
The other bad inflation news was the jumps in February Import and Export Prices. Higher oil and other commodity prices played a role, but large price increases were widespread. Nonfuel Import Prices surged 1.1% m/m, the second outsized increase in a row. They followed a slight decline over H225. Pass-through of higher energy costs may have been behind the widespread price hikes. Note that tariffs are not included in this measure of Import Prices. Nonfood Export Prices jumped 1.7%, after a large 0.7% in January. The surge in Export Prices mirrors the high PPI in the first two months of the year.
Revisions
(q/q percent change, saar)
Compensation/Hour Unit Labor Costs
Latest Previous Latest Previous
Q425 6.3 5.7 4.4 2.8
Q325 6.2 3.3 1.0 -1.8
Private Payrolls (m/m change, 000s)
ADP Estimate First-Print BLS Latest-Print BLS Continuing Claims *
March 155 209 120
April 62 167 133 14
May 37 140 69 -74
Jun -33 74 -27 -57
Jul 104 83 77 18
Aug 54 38 -4 2
Sep -32 119 104 28
Oct 42 na 1 -41
Nov -32 69 41 14
Dec 41 37 48 30
Jan 26 22 172 146 94
Feb 63 -86 na -14
Mar na na na 3
* the inverted change in Continuing Claims between Payroll Survey Weeks, 000s
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