Early readings on the US economy show resilience amid market fluctuations.
Let's review...
- 2025 has picked up where 2024 left off. So far, stocks have continued to bounce around, going from positive to negative then back again. Meanwhile, recent data on growth and inflation have prompted the market to price in higher bond yields, putting pressure on bond returns.1
- Last week, several economic indicators provided insight into the current state of the economy. The job market got a positive JOLTS (Job Openings & Labor Turnover Survey) report, showing job openings climbed higher than expected.2 Additionally, the most recent jobs report came in well above expectations, with US employers adding 256,000 jobs in December.3 These reports signal a steady and resilient economy.
- The latest reading from the Institute of Supply Management (ISM) showed promising data for both goods and services manufacturing activity, which picked up in December. The services industry continues to grow, while goods manufacturing remains sluggish, but has improved meaningfully.4
- While goods and services activity picked up, prices in both sectors remained high. Notably, the ISM revealed a surprising price increase for the costs associated with producing goods and services. This has raised concerns about inflation potentially accelerating.5
- What’s next? Soon corporate earnings reports will be released, and a new administration will take office, providing more data for the markets to process. Additionally, the US Federal Reserve’s (the Fed’s) first decision on 2025 interest rates will come at the end of this month. Stay tuned.
Institutional Portfolio Manager, Strategic Advisers LLC
"Inflation, economic growth, and interest rates are all tied together. When new information about any of these is released, the stock and bond markets adjust their expectations. For example, while another Fed interest rate cut is expected this year, stubborn inflation could cause the Fed to reconsider, which might further impact stock and bond prices."
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