Your Dentist Can't Stockpile Cleanings, and Other Stagflation Problems · Daily Briefing

The ISM Services report today was a stagflation portrait: prices paid spiked 7.7 points to 70.7 while employment cratered to 45.2. Companies see demand, won't hire to meet it, and are passing costs straight to you.

Goldman quietly quantified what many suspected: AI is already subtracting roughly 25,000 jobs per month from payrolls, concentrated in clerical and administrative roles.

The one bright spot is healthcare, which accounts for all net job growth this year and just got a Medicare rate bump. Meanwhile, Blue Owl hit a record low and China kept building the next financial system while nobody was looking.

The ISM Services prices paid component exploded to 70.7 from 63.0, the largest monthly jump since 2012. Employment simultaneously collapsed 6.6 points to 45.2, deep in contraction territory. New orders rose to 60.6, meaning demand is there but businesses refuse to staff up to meet it.

Goldman Sachs published research estimating AI substitution has already reduced monthly payroll gains by approximately 25,000 jobs, concentrated in phone operations, insurance claims, and clerical administration. AI-related computer imports hit a record in February, making up roughly 17% of all U.S. imports.

Healthcare emerged as the sole engine of job creation. After hours, Medicare finalized a 2.48% rate increase for private insurers in 2027, giving the one growing sector a revenue tailwind.

Blue Owl Capital closed at a record low of $8.45, down 1.4%, as private credit stress continued spreading.

The Iran conflict remained in economic strangulation mode. The Strait of Hormuz is running roughly 10-11 ships per day versus the 65-79 needed for normal flows. Saudi Arabia raised premiums by $20. Iran rejected ceasefire terms and issued 10-clause counter-demands.

Goldman's 25,000-jobs-per-month estimate landed on the same day the ISM Services employment index fell off a cliff, and the two stories are more connected than they look. The ISM showed businesses processing more demand (new orders at 60.6) with fewer workers (employment at 45.2). That pattern, more output per person, is exactly what AI-augmented productivity looks like in the real economy.

Here's the part that should make you uncomfortable: all net job growth this year has come from healthcare, a sector where you physically need a human to touch a patient. Strip out healthcare and the rest of the economy is flat to contracting on employment. Phone operators, insurance claims processors, basic customer service roles: these positions are disappearing permanently, not cyclically.

The policy setup is almost perverse. Trump exempted AI-related imports from tariffs, which is why AI computer imports hit a record 17% of all U.S. imports in February. So the government is actively subsidizing the technology that's displacing workers while the oil shock simultaneously destroys the alternative jobs those workers might have found.

Normally when one sector sheds jobs, displaced workers flow into logistics, retail, traditional services. But those sectors are contracting too, squeezed by energy costs. The labor force participation rate has been declining, and Goldman's research offers a causal mechanism: workers in substituted occupations aren't transitioning to new roles. They're leaving the labor force entirely. That's not a recession signal. It's a structural one.

A 7.7-point spike in ISM Services prices paid doesn't happen because of rounding. So mark your calendar for June.

The reason this particular reading is so nasty: services businesses have no buffer. A steel manufacturer facing cost spikes can draw down inventory or find substitutes. Your dentist cannot pre-produce cleanings. Your accountant cannot stockpile tax returns. When their electricity bill, their rent, their supply costs all jump simultaneously, your bill goes up the next time you walk in.

New Fed research, flagged by Timiraos, suggests the inflation engine may be running differently since the pandemic. More categories are seeing price growth above 3%, with broad-based wage growth in services as a key driver. Even categories with flat or declining input costs are maintaining elevated price growth. If that structural shift is real, the ISM spike may be stickier than historical analogs suggest.

The Fed's position is genuinely impossible. Raise rates to fight this inflation and you crush an employment market already contracting at 45.2. Hold steady and services inflation embeds itself. There is no good option when supply shocks meet employment weakness. That's the definition of stagflation: a problem with no clean policy answer.

Medicare finalizing a 2.48% rate increase for private insurers in 2027 matters more than it sounds. Healthcare is the only sector generating net employment growth this year. It's 78% female. And it just got confirmation that revenue will expand next year.

This creates a genuinely bifurcated economy. One sector, largely insulated from both AI displacement (you need hands on patients) and energy cost pass-through (healthcare pricing is administered, not market-driven), is growing and now getting paid more. Every other service sector is cutting staff to survive input cost spikes.

If you work in healthcare, your job security just improved. If you work in anything else in services, the ISM employment reading at 45.2 is telling you that businesses in your sector are choosing margin preservation over headcount. The divergence between these two realities will define the labor market for the rest of 2026.

Blue Owl at $8.45 is a record low for a company that was supposed to represent the future of finance. One paragraph, because the mechanics haven't changed: private credit funds promised liquidity on illiquid loans, the energy shock is compressing borrower margins, and the gap between reported NAVs and market pricing keeps widening. When those marks catch up to reality, another wave of redemption requests follows.