Fed’s Key PCE Inflation Gauge Rose in January as Q4 GDP and January Job Openings Data Show Weak Pre‑Iran War Growth and Hiring Recession Signs
The Fed’s preferred inflation gauge, core PCE, rose in January—worsening before Iran‑war driven fuel spikes—and Q4 data show softer underlying demand, with real final sales to private domestic purchasers revised down to a 1.9% annual rate, January real consumer spending up just 0.1% and the personal saving rate climbing to 4.5%, while AI‑related investment failed to lift business spending. At the same time job openings jumped to about 6.95 million in January (a ~396,000 increase), even as hiring stalled—employers cut 92,000 jobs and 2025 saw the weakest non‑recession hiring since 2002—heightening tensions between persistent inflation and political pressure for rapid Fed rate cuts.
📌 Key Facts
- Q4 2025 real final sales to private domestic purchasers grew at a 1.9% annual rate, a 0.5 percentage-point downward revision that confirms softer underlying demand than initially reported.
- January real consumer spending rose just 0.1% while the personal saving rate climbed to 4.5%, suggesting households were pulling back even before higher gas prices hit.
- U.S. job openings jumped by about 396,000 in January to roughly 6.95 million (openings rate ~4.2%), beating expectations; hiring and quit rates were essentially unchanged.
- Despite higher postings, labor-market weakness persists: employers cut 92,000 jobs last month and 2025 saw fewer than 10,000 jobs added per month on average — the weakest non‑recession hiring since 2002 (a 'hiring recession').
- Reports note AI‑related investment, once touted as a potential saving grace for growth, was essentially missing in the Q4 data, raising questions about the durability of business investment.
- Economist Kathy Bostjancic projects Q2 will bring both weaker activity and faster inflation as oil‑driven spikes in gasoline, diesel and fertilizer ripple through exports and business confidence.
- Political pressure is rising for faster monetary easing: Trump and Fed‑chair nominee Kevin Warsh are pushing for rapid rate cuts despite an above‑target core PCE trend, sharpening tensions between the data and policy demands.
- PBS quotes Heather Long of Navy Federal Credit Union saying job seekers face a difficult market and that the war in Iran and AI adoption are expected to make spring 2026 more challenging.
📊 Relevant Data
In January 2026, the unemployment rate was 7.2% for Black workers, 3.7% for White workers, 4.7% for Hispanic workers, and 4.1% for Asian workers, with U.S. population shares approximately 13.6% Black, 58% White, 19% Hispanic, and 6% Asian.
January 2026 Jobs Day Analysis — Joint Center
Black workers are overrepresented in occupations at high risk of AI automation, such as office support, production work, food services, and mechanical installation and repair, which could exacerbate unemployment disparities.
Black employment at risk from AI changes — Amsterdam News
High interest rates disproportionately increase unemployment among Black workers compared to White workers, with racial differences in access to higher-paying jobs contributing to this effect.
The Unequal Effect of Interest Rates by Race, Gender — Federal Reserve Bank of San Francisco
Mass deportations could reduce the U.S. workforce in key sectors like construction and child care by up to 50%, leading to labor shortages and job losses for both immigrant and U.S.-born workers.
The sector-by-sector consequences of mass deportations in the US — Oxford Economics
📰 Source Timeline (3)
Follow how coverage of this story developed over time
- Labor Department reports U.S. job openings rose to 6.95 million in January 2026, up from 6.55 million in December, beating economists’ expectations.
- Despite higher postings, the article notes the U.S. is in a 'hiring recession': employers cut 92,000 jobs last month and in 2025 added fewer than 10,000 jobs per month on average, the weakest non‑recession hiring since 2002.
- Heather Long of Navy Federal Credit Union is quoted saying job seekers are facing a difficult market, with the war in Iran and AI adoption expected to make spring 2026 more challenging.
- Quantifies that real final sales to private domestic purchasers grew at a 1.9% annual rate in Q4 2025, revised down 0.5 percentage point, confirming softer underlying demand than initially reported.
- Reports that January real consumer spending growth was just 0.1% and that the personal saving rate climbed to 4.5%, suggesting households were pulling back even before feeling the full brunt of higher gas prices.
- Adds granular labor‑market data that January job openings jumped by 396,000, lifting the openings rate to 4.2% and largely offsetting late‑2025 declines, with hiring and quit rates essentially unchanged.
- Introduces economist Kathy Bostjancic’s specific projection that Q2 will bring both weaker activity and faster inflation due to oil‑price‑driven spikes in gasoline, diesel and fertilizer and knock‑on effects through exports and business confidence.
- Highlights the political‑policy angle that Trump and Fed‑chair nominee Kevin Warsh are actively pushing for rapid rate cuts despite the above‑target core PCE trend, sharpening the tension between data and political pressure.
- Notes explicitly that AI‑related investment, touted as a ‘saving grace’ for growth, was essentially missing in the Q4 data, raising further questions about the durability of business investment.