So what's not to like in the tax cut, rebate and K-12 deal?

After Governor Evers, Assembly Speaker Robbin' Vos and Senate GOP Leader Devin LeMahieu announced a deal to increase funding for special education, cut property taxes for K-12 schools, $870 million in one-time tax rebates, and tax exemptions for OT premiums and tips, it seemed like this was all set. The Governor called a special session, the Joint Finance Committee set a meeting for Tuesday, and the Assembly and Senate would pass it on Wednesday. Easy peasy!

And then I saw this press release from Dem Guv candidate, State Senator and Joint Finance member Kelda Roys. And she was NOT happy about the deal.

“Robin Vos has controlled Wisconsin like a puppeteer for a generation. In his final ‘screw you’ to working families, he’s trying to set the state’s projected surplus on fire – all in a desperate and irresponsible gambit to rescue Howard Marklein and other vulnerable GOP legislators from their coming defeat in November.

The callout of JFC co-chair Marklein is noteworthy, and Roys brought up the prospect of her and a possible incoming Dem majority in the Legislature being handcuffed by the tax cuts and spending that are part of this deal.

“For decades, whenever Democrats win power, we have to fix the fiscal messes and economic calamities Republican politicians created – remember 1992, 2008, and 2020? Hell, go back to the Great Depression….

“This latest deal is the height of fiscal irresponsibility. It spends a projected ‘surplus’ before it’s in the bank, even though that projection was estimated before Trump’s attack on Iran that disrupted our economy and caused gas prices to skyrocket. It gives a little one time money to public schools while permanently cementing unfairness in our tax structure. Worst of all, it blows nearly a billion dollars on an election year gimmick to send out rebates, squandering the ability of a new Democratic majority to make the long-overdue investments in our kids that they deserve.

“Vos knows it’s a win-win for him – maybe this election year bribe can save a few Republican seats from flipping, and if not, he creates a budgetary crisis that Democrats will have to fix next year. The surplus – if there will even be one – rightly belongs to our kids, not Vos and the departing leaders who want to destroy it on their way out the door.”

I don’t think Sen. Roys is off-base here. As mentioned before, this deal would certainly cut into how much would be carried over into the next budget.

LFB Director Bob Lang went on to say during the JFC meeting that the $532.5 million a year in increases in K-12 aids and $50 million in Technical College funding would continue into the next budget, as would the $12.0 million in additional funding for charter and voucher schools. We’d also see most of the $232.8 million a year in the deductions for tips and OT premiums continue for the next 2 years.

Combine that with the fact that we were already set to spend more than we take in for 2026-27, and Lang told the JFC that there need to be an additional $2.9 billion to come in and/or be cut from the 2027-29 budget to keep the budget in balance. Yes, some of that would be offset by the increased revenues that the Evers Administration reported for Fiscal Year 2026, so there wouldn't be as far to go to hit the target for Fiscal 2027. But the package would certainly reduce flexibility for 2027-29, and that would frustrate Dems should they win a trifecta.

I was still surprised to Senate Dem Leader Dianne Hesselbein echo Sen Roys' thoughts, and indicate that another item of contention is that Dems in the Legislature weren't even part of the discussions.

"From my perspective, there is no deal: Three men who will not be in elected office next year have come up with this proposal which Senate Dems will be reviewing," Senate Minority Leader Dianne Hesselbein.

"Any proposal must pass both houses of the legislature and no one knows if Republicans have the votes to pass it."

Given that outgoing GOP Senator Steve nASS has already said he will vote NO (because he hates giving any money to schools, and because there is a structural deficit left in the budget), and GOP Sen Chris Kapenga also said he would vote against the deal. Which means at least some of Hesselbein's Senate Dems are needed to pass the bill, as they were needed to pass the state budget last Summer.

So Dems could get some concessions or tank the whole thing. If they win the Governorship, Senate, and Assembly this Fall (and signs are definitely pointing that way), they understandably want more fiscal cushion to work with, whether it's to help the state stay afloat during another GOP president’s recession by that time, or to make for larger changes in what our state government pays for should there be a sizable surplus.

Then the Republicans' candidate for governor decided he couldn't avoid commenting on this deal, and threw another wrench into things.

Today, Congressman Tom Tiffany announced on the Benjamin Yount Show that he opposes Governor Evers’ so-called “relief deal,” calling it another Madison gimmick that fails to deliver lasting tax relief for Wisconsin taxpayers.

“Governor Evers is acting like the arsonist who wants praise for spraying a drop of water on the fire he started.”

“This backroom ‘relief deal’ does nothing to repeal Governor Evers’ 400-year property tax increase. It does nothing to stop Madison’s addiction to taxing and spending. And after Governor Evers’ PSC approved billions in utility rate hikes, a one-time $300 check barely scratches the surface.”

“When I am governor, the gimmicks stop and lasting relief begins. The 400-year property tax increase will be repealed. Madison’s addiction to overtaxing families will be dismantled. Surplus funds will be returned to the taxpayers where they belong, and Wisconsin workers will keep more of what they earn from the very beginning.”

In addition to the generally lame and off-base talking points, Tiffany also apparently dislikes a deal that lowers property taxes on schools and tech colleges and has tax rebates because... it adds funding to schools and doesn't give corporations and others even more tax cuts that drives the price tag higher?

You run on that, Tom.

Tiffany's blabbering is likely is part of the reason that Vos and LeMaheiu can't round up enough Republicans to get this package passed on its own, with the situation complicated because fair maps lessened the GOP's margins in the Legislature. Then add in the fact that Dems in the Legislature don't want to go along with this because they think they'll be in charge in the next session, and all of a sudden, this isn't the sure thing that Evers, Vos and LeMahieu figured it would be when they worked out their compromise.

Evers doesn’t seem too concerned about telling the GOPs in the Legislature "you had your chance, now you deal with the voters", and I think he genuinely wants to improve things for the typical Wisconsinite before he leaves office. I get it, and I see where this package is an improvement over where we stand today. It adds state funding to schools and lowers property taxes, which GOPs in the Legislature has been refusing to do, and basically pays for the property tax increases that many had to deal with last Winter with the rebate checks.

But that might not be enough for legislators and candidates that have other incentives and interests. Suppose we will find out soon. Looks like the Senate is finally on the floor as I write this, so maybe there's....something?

Tax cut, rebate and K-12 deal, by the numbers

Even though the Legislature has adjourned for this session and Governor Evers has decided not to run for a third term, we found out on Monday that there is some work that could still be done at the State Capitol.

Democratic Gov. Tony Evers and Republican legislative leaders have struck a $1.8 billion deal to deliver new funding to schools, lower property taxes and send direct payments to income tax filers across the state.

The bipartisan spending package comes two months after state lawmakers ended their regular session for the year and at a time when the cost of living has become central to Wisconsin voters' decision-making ahead of the midterm elections, when control of the state Legislature and the governor's office are up for grabs.

"It's a historic day for Wisconsin’s kids and our schools, and I’m jazzed we were able to get this done," Evers said in a statement....

The proposed deal will spend down the state's projected $2.5 billion surplus that, until now, lawmakers have been unable to agree on how to spend. An Evers spokeswoman told reporters there will still be funds left in the surplus, and the deal does not tap into the state's rainy day fund of more than $2 billion.

Ok, so what’s in the school funding and tax break deal?

First off, the bill would give another boost to aids for K-12 special education, allowing for the state to cover an estimated 50% of costs instead of the 30.6% it was covering last year and the 35% it is projected to cover this year.

This bill provides an additional $85,000,000 in fiscal year 2025-26 and $230,000,000 in fiscal year 2026-27 for special education and school age parents programs. Under current law, the state reimburses the full cost of special education for children in hospitals and convalescent homes for orthopedically disabled children. After those costs are paid, the state reimburses school boards, operators of independent charter schools, cooperative educational service agencies (CESAs), and county children with disabilities education boards (CCDEBs) for costs incurred to provide special education and related services to children with disabilities and for school age parents programs (eligible costs) from the amount remaining in the appropriation at a rate that distributes the full amount appropriated.

In addition, there is a bump in “regular” state aids that will allow the state to pay more for everyday expenses.

The bill creates a second per pupil aid for school districts that is funded from a sum certain appropriation and is considered state aid for purposes of revenue limits (per pupil state aid). Under the bill, beginning in the 2026-27 school year, the per pupil amount of per pupil state aid is determined by dividing the amount appropriated for per pupil state aid for the current school year by a three-year average of the number of pupils enrolled statewide. The per pupil amount is then multiplied by a three-year average of the number of pupils enrolled in a school district. For purposes of per pupil state aid, the number of pupils enrolled in a school district includes pupils enrolled in an independent charter school other than a legacy independent charter school. The bill appropriates $302,500,000 for per pupil state aid in the 2026-27 school year. Finally, the bill requires per pupil state aid to be paid on a schedule that is similar to the distribution schedule for equalization aids.

So schools still can’t increase their revenue limits beyond the $325-per-student increase that was laid out in Gov Evers’ creative veto from a couple of years ago (at least without going to referendum). But this additional $302.5 million in per pupil aids are intended to cut December property taxes for K-12 schools by the same amount statewide.

There is another $50 million trade of state aids for property taxes when it comes to the state’s technical college system. This adds on to an earlier $406 million “state dollars for property taxes” swap that was done in 2015, and in both cases, the tech college system was not allowed to use the state dollars to add resources (take from that what you will).

The bill also includes the provisions of GOP Tax Scam 2.0 that deducts tips and the extra pay above regular pay that people get from overtime. But there’s a main difference in the Wisconsin deduction, as it would continue at the state level beyond the 2028 expiration of the federal end tax break on tips and OT.

For “regular” income, the Evers and the outgoing GOP legislative leaders decided against cutting tax rates, and instead went with a one-time tax rebate for those who lived here in 2024.

The bill provides a surplus refund payment to taxpayers who filed a Wisconsin individual income tax return for tax year 2024 and who owed Wisconsin individual income tax for that year. The payment is $600 for married persons filing a joint return and $300 for all other individuals. The payment may not exceed the amount of the taxpayer’s 2024 net income tax liability. No payment may be paid to any of the following: 1) taxpayers who were a dependent of another taxpayer iyn tax year 2024; 2) certain taxpayers who are deceased; or 3) part-year residents or nonresidents whose Wisconsin income in tax year 2024 was less than 90 percent of total income.

Under the bill, the Department of Revenue must identify taxpayers who are eligible to receive the payments and the Department of Administration must issue the payments without taxpayers having to take any further action. The bill requires that DOA issue the payments no later than September 15, 2026. A taxpayer who does not receive the amount of payment for which he or she is eligible may file a claim by using a portal on DOR’s website. No claims may be filed after December 15, 2026.

So hang in there for the next 4 months, and you’ll get $300/$600! The rebate would be an estimated $870 million, but since it’s a one-timer, it won’t be cutting into available funds in the next state budget.

The Legislative Fiscal Bureau also gave a breakdown of the tax cut and K-12 spending bill. And they give a bit more context, especially on the K-12 items, starting with special education aids.

….Payments are made from a sum certain appropriation, with the dollar amount set by the Legislature during the budget process. The actual proration rate in each year is calculated by dividing the amount of appropriated funding by the total prior year aidable costs reported by districts. In 2024-25, $574,777,700 GPR was appropriated for special education aid and the final proration rate was 30.64%. Under 2025 Act 15, the appropriation for special education was increased to $782,408,800 GPR in 2025-26 and $871,826,900 GPR in 2026-27.

The bill would increase the dollar amounts in the sum certain special education aid appropriation by $85,000,000 GPR in 2025-26 and $230,000,000 GPR in 2026-27. The total amounts in the appropriation would equal $867,408,800 GPR in 2025-26 and $1,101,826,900 GPR in 2026-27. Based on costs as of March, 2026, it is estimated that this additional funding would reimburse costs at a rate of 42.7% in 2025-26, and 50.0% in 2026-27. The actual reimbursement rate could be higher or lower, depending on final prior year aidable costs.

The LFB estimates the per-pupil increase at $387 per student, more than paying for the $325-per-student increase in revenue limits that was part of Governor Evers’ creative veto. Which shows that the Tom Tiffany talking point of “400-year property tax increases” was always BS - it's just that he and his fellow Republicans didn't want state taxes to pay for the schools.

The Evers Administration says we can, as tax season filings allow the state to have an even bigger cushion than the $2.5 billion that LFB projected back in January.

Through April, fiscal year 2025-26 general fund tax collections are tracking approximately $300 million to $350 million above the Legislative Fiscal Bureau’s January estimates, which were $1,529.0 million above the net balance projected at the time of enactment of the 2025-27 biennial budget. Strength in general fund tax collections has primarily emanated from individual and corporate income tax receipts to date. Sales tax collections have also modestly exceeded estimates. Please note that overall general fund tax collections during the few remaining months of fiscal year 2025-26 may cause modest positive or negative variance from the trend so far this fiscal year.

Through April, fiscal year 2025-26 general fund tax collections have increased 5.3 percent compared to last year. Individual income tax collections have risen 4.4 percent, corporate income tax collections have increased 11.1 percent, and sales and use tax collections have risen 4.5 percent. While a portion of the gain in individual income tax collections results from a favorable comparison due to processing season anomalies in fiscal year 2024-25, growth has significantly exceeded the 1.4 percent growth rate estimated in January for fiscal year 2025-26.

I knew the revenue numbers were looking good through March, even with additional refunds from income tax cuts in the 2025-27 state budget. And now that tax filing season has ended in April, the Evers Administration says Wisconsin is running ahead of what the Legislative Fiscal Bureau estimated back in January, which was higher than what was estimated when the budget was signed into law in early July 2025.

So let's go with the assumption that revenues will end up $300 million above the LFB's estimates from January for FY 2026. And then let's assume the same rate of revenue growth that was in the LFB's estimates, so there's around $305 million more in revenues to play with in FY 2027 than originally estimated, for a total increase of $605 million. The LFB also gave updated estimates of what this tax cut, rebate and K-12 spending package would do to the available funds in the state, without assuming the extra revenues that the Evers Administration was saying Wisconsin was on track for in this Fiscal Year. Let's include those numbers as well, and see what they look like.

And when you run the numbers, it looks like there would be just under $3.1 billion projected to be available if the Evers Administration is correct and revenues continue to be above LFB estimates. And if this package were to go through, the extra revenues would provide more cushion, taking the available funds from $553 million to 1.16 billion.

Seems like there's a lot to like about this. Property taxes for K-12 schools get reduced, just under 2 million Wisconsinites will be getting checks of up to $300 or $600, and others get reduced taxes on their OT and/or tips. So why has neither house of the State Legislature passed it as I write this at 7:40 on the evening the bill was supposed to be passed?

I'll go into those hangups from members of both parties on the next post. And most of it has to do with who might be running state government in 2027 after Governor Evers, and GOP Legislative Leaders Vos and LeMaheiu are all gone, and how much money would be available to get things done.

Higher productivity to start 2026 just means more profits, not better wages

Whether it's added AI investment or just worker improvements, the US saw higher productivity to start off 2026.

Labor productivity, or output per hour, is calculated by dividing an index of real output by an index of hours worked by all workers, including employees, proprietors, and unpaid family workers. During the current business cycle, starting in the fourth quarter of 2019, labor productivity has grown at an annualized rate of 2.1 percent, reflecting a 2.5-percent rate of growth in output and a 0.4-percent rate of growth in hours worked. The 2.1-percent annualized rate of nonfarm business productivity growth in the current business cycle thus far is higher than the 1.5-percent rate of the previous business cycle, from the fourth quarter of 2007 through the fourth quarter of 2019, and just below the long-term rate of 2.2 percent since the first quarter of 1947.

This graph from the Bureau of Labor Statistics explains a lot, showing that productivity has been responsible for virtually all increases in nonfarm output for 3 years.

And it’s even more so in the manufacturing sector, where hours works have consistently declined over the last 3 years, including at the start of 2026.

Manufacturing sector labor productivity increased 3.6 percent in the first quarter of 2026, as output increased 3.3 percent and hours worked decreased 0.4 percent. In the durable manufacturing sector, productivity increased 5.3 percent, reflecting a 5.4-percent increase in output and a 0.1-percent increase in hours worked. Nondurable manufacturing sector productivity increased 2.0 percent, as output increased 0.9 percent and hours worked decreased 1.0 percent. Total manufacturing sector productivity increased 1.7 percent from the same quarter a year ago.

Here’s an extra kicker – workers didn’t get financial benefits from being more productive in the first three months of 2026.

BLS calculates unit labor costs as the ratio of hourly compensation to labor productivity. Increases in hourly compensation tend to increase unit labor costs and increases in productivity tend to reduce them. Real hourly compensation, which takes into account consumer prices, decreased 0.5 percent in the first quarter of 2026, and increased 1.4 percent over the last four quarters. The labor share, which is the percentage of output that accrues to workers in the form of compensation, was 54.1 percent in the first quarter of 2026, the lowest recorded value since the series began in 1947.

Oh? The lowest share of worker compensation in at least 79 years? It’s almost like owners have used technological advances to grab profits for themselves and keep it away from the workers that made it possible! Especially in the 2020s.

That loss of real worker compensation isn’t going to get better in Q2, as Friday's tepid increase of 0.2% isn't going to come close to keeping up with the inflation we had in April. And with gas prices going up another 25 cents a gallon nationwide in the first week of May, that declining situation for US workers doesn't seem to be ending any time soon.

Which makes you wonder when a lot of workers start asking why they should go along with productivity "improvements", since it doesn’t seem to give them much in return.

More jobs in April, but fewer Americans working, and wage growth still lame

Even as gas prices go through the roof and everyday Americans feel bad about the economy, the job market kept moving along in April. Looking at Friday's US jobs report, it was a second straight month of six-figure job growth, something that didn’t happen in all of 2025.

Total nonfarm payroll employment edged up by 115,000 in April, after showing little net change over the prior 12 months. In April, job gains occurred in health care, transportation and warehousing, and retail trade. Federal government employment continued to decline.

In April, health care added 37,000 jobs, in line with the average monthly gain of 32,000 over the prior 12 months. Over the month, job gains occurred in nursing and residential care facilities (+15,000) and home health care services (+11,000).

Transportation and warehousing employment increased by 30,000 in April, reflecting a gain in couriers and messengers (+38,000). However, employment in transportation and warehousing is down by 105,000 since reaching a peak in February 2025.

I was trying to figure out what these Couriers and Messengers jobs are, and why they grew by so much last month. Here’s how the Bureau of Labor Statistics defines it.

Pick up and deliver messages, documents, packages, and other items between offices or departments within an establishment or directly to other business concerns, traveling by foot, bicycle, motorcycle, automobile, or public conveyance. Excludes “Light Truck Drivers”

Looks like a lot of these jobs are in medical labs and hospitals, along with regular delivery services. And Wisconsin had a surprisingly large amount of these types of jobs 3 years ago, with the 3rd highest concentration in the country, and by far the most in the Midwest.

But this sector has barely above 1 million jobs nationwide, and its “growth” in the last 2 months has been entirely seasonally adjusted. The BLS's models counted on more layoffs in March and April, and when that didn’t happen, the seasonally adjusted numbers went up.

Couriers and Messengers job change, seasonal vs non-seasonal
March 2026
Seasonally-adjusted +21,700
Non-seasonally adjusted -14,700

April 2026
Seasonally-adjusted +37,900
Non-seasonally adjusted +1,400

Look, there are a lot of industries that have their job numbers deflated in April as the weather warms, so this isn’t a big deal and I’d call the overall jobs numbers for April “decent to good”. But I will also say that when 1/3 of your job “growth” is due to a seasonal adjustment, it’s not great.

And the household survey wasn’t good at all.

The unemployment rate was unchanged at 4.3 percent in April, and the number of unemployed people changed little at 7.4 million. Both measures changed little over the year….

Both the labor force participation rate, at 61.8 percent, and the employment-population ratio, at 59.1 percent, changed little in April. These measures edged down over the year after accounting for annual population control adjustments.

That 59.1% figure in the employment-population ratio is the lowest non-COVID rate since September 2014, and the 61.8% participation rate is the lowest non-COVID level since the start of 1977!

This "edging down" means the number of people in the US labor force and the number of people ID’ing as employed have each declined by more than 1 million in the last 12 months.

I've got the trendline up on these because the big drop at the start of 2026 is due to the benchmarking that happened in March 2026, where the BLS followed lower population growth figures by saying the US labor force and number of people employed had shrunk more than first reported.

That's due to immigration has been limited under Trump 2.0 and older workers keep retiring and not being replaced. And White House adviser Kevin Hassett tried to turn those declining labor force and participation numbers into a good thing when asked about it on Fox News.

FOX NEWS: The negative is that labor supply is shrinking. You've got baby boomers retiring, you've got less illegal immigration, you got more deportations. How do you factor that in? HASSETT: I don't think that's a negative. I think it's a positive. You've got more good jobs for legal Americans.

[image or embed]

— Aaron Rupar (@atrupar.com) May 8, 2026 at 8:38 AM

Except that’s not happening, Kevin! Nearly 1 million of the drop in the labor force are from native-born Americans, and more than 1.1 million of the drop in employment over the last 12 months and is from native-born Americans (with more than 1.0 million being native-born American men).

In addition, wage growth sucks for American workers.

In April, average hourly earnings for all employees on private nonfarm payrolls rose by 6 cents, or 0.2 percent, to $37.41. Over the year, average hourly earnings have increased by 3.6 percent. In April, av>erage hourly earnings of private-sector production and nonsupervisory employees rose by 11 cents, or 0.3 percent, to $32.23.

While slightly above the 3.4% year over year increase in March, it's still a lot lower than what we were seeing during the last bout of gas price spikes in 2022.

This wage increase is also barely above the 12-month change of 3.3% between March 2025 and March 2026 in the Consumer Price Index, which means wage growth will likely fall below the 12-month inflation rate that shows up in April’s CPI report, which comes out next week.

So sure, the payrolls numbers look good on the April jobs report, and there's no evidence that we are in any kind of overall recession. But a number of other employment indicators tell us that things are far from booming, and many Americans (working and otherwise) aren't able to keep up with the higher prices that have become an increasing part of life in May 2026. Which goes a long way toward explaining why American consumer sentiment is at its lowest point in decades. And what could come along to change that for the coming months?

Well, turn around consumer sentiment positively, that is. If we start seeing unemployment being closer to 5% than 4% and this bump up in job growth reverse....LOOK OUT!

Gas price spending patterns the latest evidence of an economy brought to you by the Letter K

With gas prices jumping above $4.50 nationwide, there was a timely release from the New York Fed on how high gas prices hit differently, depending on how much money you’ re making.

...We divide all households into low-income (earning less than $40,000 a year) households, middle-income (earning between $40,000 and $125,000) households, and high-income (earning over $125,000) households, as we have done in previous blogs on the divergence in retail spending growth by income level and potential explanations. The high-income households represent approximately a third of all households. In the panel chart below, we present how the rises and falls in spending and consumption varied for the three income types. We deflate gas station spending for each income group using a demographic-specific gasoline price deflator.

We see that the three income categories had very different experiences during the March 2026 energy price shock. Low-income households increased their nominal gas spending by the least (12 percent). However, this was accomplished because they cut their real gas consumption the most (7 percent). On the other hand, high-income households increased their nominal gas spending by the most (19 percent) in a large part because they reduced their real gas consumption the least (1 percent). Middle-income households had intermediate increases in nominal spending and decreases in real consumption at gas stations. Thus, the K-shaped consumption pattern in both nominal and real gasoline spending was strongly evident in March 2026.

These divergences in the response to an energy price shock are not unique to the month. Four years ago, energy prices rose and remained elevated during the spring and summer of 2022 when the Russia-Ukraine war disrupted energy markets. The magnitude of the initial Russia-Ukraine gasoline price shock was broadly similar to the current one, but it lasted longer to date and ramped up over time. As we see from the panel chart below, between January and July 2022, nominal gas spending rose more for high- and middle-income households than it did for low-income households, while real gas consumption declined less for high-income households than it did for middle-income and low-income households. Notably though, while directionally similar, the magnitudes of the gaps (both for nominal and real spending) were noticeably smaller than the corresponding gaps we see in March 2026. Nominal and real spending rebounded to their pre-shock levels after energy prices declined in late 2022.

Which tracks, as lower-income people are the ones most likely to be close to the edge and have to either dip into savings or cut back on spending if any expense goes up. Richer people may get annoyed by the higher prices, but don’t often have to change their spending or investing habits.

We also saw more evidence that economic activity keeps growing without necessarily seeing people getting hired in the process. After the Institute for Supply Management released information showing that manufacturing in America continued to increase output while shedding jobs, we saw the same thing happen in ISM’s report about the nation’s services industry.

In April, the Services PMI® registered 53.6 percent, 1.1 percentage points above its 12-month moving average of 52.5 percent. A reading above 50 percent indicates the services sector economy is generally expanding; below 50 percent indicates it is generally contracting.

A Services PMI® above 48.1 percent, over time, generally indicates an expansion of the overall economy. Therefore, the April Services PMI® indicates the overall economy is expanding for the 71st straight month. Miller says, “The past relationship between the Services PMI® and the overall economy indicates that the Services PMI® for April (53.6 percent) corresponds to a 1.7-percentage point increase in real gross domestic product (GDP) on an annualized basis.”….

Employment activity in the services sector remained in contraction in April for a second month in a row. The Employment Index registered 48 percent, up 2.8 percentage points from the March figure of 45.2 percent and 0.6 percentage point below its 12-month average of 48.6 percent. Comments from respondents include: “We are experiencing large capital investment projects, requiring an increase in sourcing and material purchasing as well as head count” and “Beyond layoffs from the end of the year, there has been an uptick in attrition.”

The “attrition” comment makes sense to me, as we have seen low job growth for the last year, but there’s also a remarkably low amount of layoffs, including the lowest amount of (seasonally-adjusted) new unemployment claims since 1969 at the end of April?

When you have an economy that's as two-track like this, you’re going to get a situation where the typical American thinks the economy isn’t going well and their personal situation is getting worse, but the overall numbers still look good and the stock market loves it (hey, the DOW was back at 50,000 at one point today!).

And as long as enough money is getting sent around and large amounts of people aren’t losing jobs or cutting their consumption all at once, the musical chairs continues. Until someone decides it's time for the music to stop.

Manufacturing orders up, but so are prices. And jobs are still going down

More data showing that economic growth continued in March, as orders and shipments in manufacturing kept increasing.

New orders for manufactured goods in March, up four of the last five months, increased $9.1 billion or 1.5 percent to $630.4 billion, the U.S. Census Bureau reported today. This followed a 0.3 percent February increase. Shipments, up five of the last six months, increased $8.8 billion or 1.4 percent to $633.9 billion. This followed a 1.7 percent February increase. Unfilled orders, up twenty of the last twenty-one months, increased $1.6 billion or 0.1 percent to $1,540.9 billion. This followed a 0.1 percent February increase. The unfilled orders-to-shipments ratio was 6.88, down from 6.92 in February. Inventories, up six consecutive months, increased $5.8 billion or 0.6 percent to $956.3 billion. This followed a 0.1 percent February increase. The inventories-to-shipments ratio was 1.51, down from 1.52 in February.

New orders for manufactured durable goods in March, up following three consecutive monthly decreases, increased $2.7 billion or 0.8 percent to $318.9 billion, unchanged from the previously published increase. This followed a 1.2 percent February decrease. Computers and electronic products, up eleven of the last twelve months, led the increase, $1.0 billion or 3.6 percent to $29.6 billion. New orders for manufactured nondurable goods increased $6.5 billion or 2.1 percent to $311.5 billion.

Shipments of manufactured durable goods in March, up six of the last seven months, increased $2.4 billion or 0.7 percent to $322.4 billion, unchanged from the previously published increase. This followed a 1.6 percent February increase. Machinery, up four of the last five months, led the increase, $0.9 billion or 2.3 percent to $41.6 billion. Shipments of manufactured nondurable goods, up four consecutive months, increased $6.5 billion or 2.1 percent to $311.5 billion. This followed a 1.9 percent February increase. Petroleum and coal products, up three consecutive months, led the increase, $5.6 billion or 9.9 percent to $62.1 billion.

Which indicates that manufacturing was still going strong at the end of Q1 2026, at least on the demand for products.

And last week, the latest ISM Manufacturing report said that growth of output kept going into April.

The report was issued today by Susan Spence, MBA, Chair of the Institute for Supply Management® (ISM®) Manufacturing Business Survey Committee.

“The Manufacturing PMI® registered 52.7 percent in April, the same reading as March. The overall economy continued in expansion for the 18th month in a row. (A Manufacturing PMI® above 47.5 percent, over a period of time, generally indicates an expansion of the overall economy.) The New Orders Index expanded for the fourth straight month after four straight readings in contraction, registering 54.1 percent, up 0.6 percentage point compared to March’s figure of 53.5 percent. The April reading of the Production Index (53.4 percent) is 1.7 percentage points lower than March’s reading of 55.1 percent. The Prices Index remained in expansion (or ‘increasing’ territory), registering 84.6 percent, a 6.3-percentage point jump from March’s reading of 78.3 percent. In the last three months, the Prices Index has increased 25.6 percentage points to reach its highest level since April 2022 (84.6 percent). The Backlog of Orders Index registered 51.4 percent, down 3 percentage points compared to the 54.4 percent recorded in March. The Employment Index registered 46.4 percent, down 2.3 percentage points from March’s figure of 48.7 percent,” says Spence….

Spence continues, “In April, U.S. manufacturing activity remained in expansion territory, growing at the same pace as the month before. Of the five subindexes that make up the PMI®, the New Orders and Supplier Deliveries indexes indicated faster growth compared to the previous month, the Production Index grew at a slower rate, and the Employment and Inventories indexes remained in contraction.

But did you notice that “prices paid” part? A number over 50 would indicate prices went above the previous month’s level. But 84.6% is a whole different level, back to the days of Spring 2022, which had the highest price increases in over 40 years. And the ISM report says the higher prices are happening in every industry of the sector.

So if prices are jumping by so much, is a 1.5% increase in the cost of new orders for March or a 1.4% increase in the cost of shipments all that impressive? And looking inside the ISM numbers, you can see evidence of more job losses in April and the prospect of slower overseas business along with those higher costs and prices.

Increased production with lower employment can only be possible with higher increases in productivity. But that's supposed to bring prices per unit down , and instead prices are going up at their highest amounts in 4 years...and 40+ years.

This is a recipe for higher profits for manufacturers on top of what was already back near record levels in the industry at the end of 2025.

Hey lookie there - profits are back at the peaks of the "inflation" times of 2022! What a coincidence!

Let's see if my instinct is right, where these higher prices lead to record profits for businesses, while everyday workers pay. And when do the increased orders and demands stop when no one can afford the combination of higher prices and lower wages and fewer jobs.

American consumers kept spending and paying more in March. With savings going down further

Not surprisingly, we got more data showing that inflation spiked up in the month after the bombs started falling in the Middle East.

Consumers faced escalating prices in March as the Iran war sent oil soaring and created a new level of challenges for the Federal Reserve, according to a batch of reports Thursday that showed economic growth slower than expected and a generational low in layoffs.

The core personal consumption expenditures price index, which excludes food and energy, accelerated a seasonally adjusted 0.3% for the month, pushing the 12-month inflation rate to 3.2%, the Commerce Department reported Thursday. The readings matched the Dow Jones consensus estimates. Core inflation hit its highest level since November 2023.

Including the volatile gas and groceries components saw higher readings, with the monthly gain at 0.7% and the annual rate hitting 3.5%, also in line with forecasts.

We can blow off the gas price increase if we want, but I bet typical American consumers aren’t, and businesses won’t be ignoring the extra transportation and input costs that results. So let’s also not shrug off a PCE monthly inflation number that would be over 8% on an annual basis.

The only time we’ve seen the PCE Price Index increase by this much in a month was during the peak post-COVID inflation times between October 2021 and June 2022, when it reached 0.7% two times and exceeded it two other times. And while gas prices leveled off in the first part of April, we've now seen another jump in prices in the last week, with an increase of 35 cents a gallon in the last 7 days, and 44 cents in Wisconsin.

Digging into the full income and spending report itself, it shows that while Americans spent more in March, a lot of it was due to the rising gas prices in that month.

Personal outlays—the sum of PCE, personal interest payments, and personal current transfer payments—increased $198.6 billion in March. Personal saving was $857.3 billion in March, and the personal saving rate—personal saving as a percentage of DPI—was 3.6 percent….

The $195.4 billion increase in current-dollar PCE in March reflected increases of $132.6 billion in spending on goods and $62.9 billion in spending on services.

Take out increased gas and health care spending, and the rest of PCE went up by 0.5% instead of the 0.9% top line (not adjusted for inflation). Not bad, but not amazing either.

And for most Americans, incomes didn’t even go up that much, because most of the jump in income came from non-working income.

That rise in non-working income reflects farm owners seeing their incomes nearly double in March, as a large swath of Farm Bridge Assistance payments went out that month, trying to make up for damage caused by Trump tariff policy. Take that out of the equation, and it’s only a 0.3% increase in incomes for March - well below inflation. In addition, disposable incomes have been inflated due to increased tax refunds in the first months of 2026. That’s not going to be the case after April, so that’ll be another headwind.

The savings rate also continued to fall in March, as the 0.6% increase in personal incomes didn’t match the increase in spending. This continues a general decline that we've been in since the start of 2024.

With costs staying high for the foreseeable future, don’t be surprised if the savings rate falls below 3% soon, which also would be a flashback to 2022’s peak inflation…. without the stimmy checks and higher incomes of 2020 and 2021 bulking up savings before that. The other time we fell below 3% saving? The mid-2000s, right before the debt-pumped Bubbles popped and the Great Recession began.

Put all this together, and add in the fact that unemployment claims are somehow going lower at the end of April, and I’d argue that we are in a “’flation” stage of the stagflationary cycle that is reality in much of America. While the Federal Reserve stayed pat this week and didn’t even change their wording about risks or plans for future rate cuts (albeit with some dissenters on the Board). I have to think that more declines in savings and continued inflation for Q2 2026 will lead to changes at the next Fed meeting in mid-June.

And while American consumers and Wall Streeters continue to shake off the higher prices and stagnant incomes, there has to be a point where they deal with reality and make some adjustments of their own. Which is going to trigger a lot of other economic effects.