The labor market is stable — for now — but inflation’s surge is eroding what’s left of household resilience
TS
Theo Sheridan
inflation household budget · Apr 10, 2026
Source: The Digital Ledger Data Terminal
Household disposable income dropped for the first time in nine months, and the saving rate fell to 4.0% from 4.5% in January. Consumer spending rose 0.5% in February but edged up just 0.1% in real terms after inflation. The combination of falling savings, rising inflation, and stagnant real income is weakening household capacity to sustain consumption.
Initial claims for state unemployment benefits rose 16,000 to a seasonally adjusted 219,000 for the week ended April 4. Low layoffs are anchoring the labor market, with no evidence of increased layoffs or further pullback in hiring. The number of people receiving unemployment benefits after an initial week of aid decreased 38,000 to 1.794 million, the lowest level since May 2024. But part of that decline likely reflects people exhausting their 26-week eligibility for benefits. Some unemployed young adults, who typically have limited or no work history, are not eligible for jobless benefits and are disproportionately affected by weak labor conditions.
The PCE Price Index increased 0.4% in February, the largest increase since February 2025, driven by rising prices for recreational goods, vehicles, clothing, footwear, gasoline, and services. Core PCE inflation rose 0.4% in February for the second straight month, with 12-month core inflation at 3.0%. Gasoline prices surpassed $4 per gallon for the first time in over three years, contributing to a 1.4% rebound in energy costs. Economists expect March CPI to rise about 1.0% monthly, translating to a 3.3% year-on-year increase.
The Federal Reserve tracks PCE inflation for its 2% target. Officials now believe monthly increases must hold at 0.2% for a sustained period to return to target — a threshold that has not been met. The central bank left its benchmark rate in the 3.50%-3.75% range. The odds of a rate cut this year have greatly diminished.
GDP growth slowed to a 0.5% annualized rate in the fourth quarter, down from 4.4% in the third quarter, with the Atlanta Fed’s first-quarter tracking estimate at 1.3%.
