From EJ Antoni (first published two weeks ago):
First, 2025 was a year of change in the economy. Under Democratic President Joe Biden, especially his last two years in office, job growth has been disproportionately driven by government employment. Similarly, government purchases have played a major role in increasing overall economic activity, as measured by gross domestic product (GDP). …
The second factor is the difference between inflation and prices….
But note that mileage signs do not go down even in the absence of inflation. That’s almost where we are today, with real-time inflation metrics like Truflation showing an inflation rate of less than 1%, almost as far out of recession.
Even if Congress does nothing, the good news is that income growth is helping to solve the problem, albeit slowly, and that’s the third major change in the economy.
Under Biden, wages have grown significantly, but prices have risen much faster. …
…the fourth factor to be understood, which is state finances. Because the economy is growing fast, tax receipts for the Treasury increased by 11.8% this fiscal year, compared to the same months in the previous fiscal year—which was the last four months of the Biden administration.
…
That brings us to the last part: investment. Between tax and regulatory cuts and Trump’s trade talks, billions of dollars in investment are pouring into the country. …
… After years of tension, the finish line of success is in full view.
In point 1, private employment grew faster in Biden’s last year than Trump’s first year. Since employment is plotted on a log scale, a flat slope indicates slow growth.
Figure 1: Private non-farm employment, in logs, 2025M01=0 (blue). Source: BLS.
On point 2, Truflation actually says inflation of 0.98% y/y at the moment. In January, Truflation recorded inflation at 1.6% y/y, while the BLS reported 2.39%. (Warning: Truflation’s CPI inflation series looks like this, compared to the BLS, and the Cleveland Fed’s nowcast; remember EJ Antoni is Truflation’s strategic advisor…)
Figure 2: Year-over-year inflation from BLS (blue), Cleveland Fed nowcast of 3/10 (sky blue), Truflation CPI inflation, mid-month reading (green), all in %. Source: BLS, Cleveland Fed, Truflation.
A beautiful madman! Not all of the difference between the BLS and Truflation measures can be attributed to housing management. See also comments on Truflation.
In addition, inflation expectations have risen significantly since the start of the US-Iran war.
Figure 3: Five-year inflation (blue), and DKW’s five-year average of expected inflation (red). The red line is 2.4%, which corresponds to 2% PCE inflation. Source: Treasury via FRED, Fed/DKW, and author’s calculations.
At point 3, Median real wages (as opposed to hourly earnings) show less untilacceleration, 2024Q4-2025Q3 vs. 2023Q4-2024Q4.
Figure 4: Median average weekly earnings, 1982-84$ (blue). Source: BLS.
In point 4, CBO finds that the deficit in February FYTD (fiscal year to date) is $1 billion larger in FY2026 than in FY2025… Taking the IEEPA tax the Supreme Court ruled illegal, and the International Trade Court ruling that the IEEPA tax money should be returned we know where this tax is going, I think things are going well.
In point 5, “billions of dollars of investment are pouring into the country”, I think that such declarations, to put it mildly, are delusional. As PIIE has shown, promises strengthen faith. Or see Shawn Donnan’s (Bloomberg) list.
So… it could be that the US economy is ready to “explode”, but I’m not holding my breath. Kalshi took the 2026 y/y GDP growth from 2.6% before Iran to 2.3% today.
