Economic Indicators Kick Off 2025 on Resilience and Mixed Signals
2min read Recent economic data offers a mixed but generally resilient picture of the U.S. economy. A key highlight is the continued strength in labor markets, reflected in lower-than-expected jobless claims.
However, weakness in construction spending and manufacturing activity points to pockets of softness as businesses navigate a challenging macroeconomic environment. Here is a closer analysis of the data and its implications for investors.
Labor Market Resilience
Initial jobless claims for the week ending December 28 fell by 9,000 to 211,000, beating expectations of 224,000. Continuing claims also declined to 1.844 million, a reduction of 52,000. The low level of initial claims suggests that businesses remain reluctant to reduce headcount, a leading indicator that aligns with positive business sentiment.
This resilience in the labor market is significant because it underpins consumer spending, a critical driver of the U.S. economy. However, sustained low unemployment could also add pressure on wage inflation, keeping the Federal Reserve vigilant about maintaining balance in its monetary policy.
Stagnant Construction Spending
Construction spending was flat in November, showing no month-over-month growth after a 0.5 percent increase in October. Private construction rose slightly by 0.1 percent, while public construction fell by 0.1 percent. On an annual basis, construction spending increased by 3.0 percent, but the report highlights a lack of momentum, particularly in nonresidential construction.
This stagnation reflects hesitancy among developers and public agencies to commit to new projects, likely due to higher borrowing costs and uncertainty in the broader economic environment. Investors should watch for potential fiscal policy shifts or incentives that could reinvigorate this sector.
Manufacturing Activity Contracts Further
The S&P Global US Manufacturing PMI for December registered 49.4, slightly better than the preliminary reading of 48.3 but still below November’s 49.7. This marks another month of contraction, with the index staying below the 50.0 threshold that separates expansion from contraction.
The manufacturing slowdown suggests that rising input costs, global trade uncertainties, and shifting consumer preferences are weighing on industrial activity. However, the improvement from the preliminary reading may signal that the pace of contraction is stabilizing.
Housing Market Weakness
The MBA Mortgage Applications Index declined sharply, dropping 21.9 percent over two weeks. Refinance applications fell by 36 percent, while purchase applications were down 13 percent. While this data covers a two-week period and might appear worse at first glance, it underscores the challenges posed by rising mortgage rates and declining affordability in the housing market.
Outlook for Key Upcoming Data
Investors will closely monitor the December ISM Manufacturing PMI, expected to come in at 48.5 percent, for further insights into the industrial sector’s health. Additionally, the release of EIA Natural Gas Inventories and remarks from Richmond Fed President Barkin could provide direction for energy markets and monetary policy expectations.
Conclusion
The U.S. economy continues to demonstrate resilience in critical areas such as labor markets, but challenges in construction, manufacturing, and housing reflect the ongoing balancing act for policymakers and businesses.
For investors, this environment requires a nuanced approach, focusing on sectors and companies that can navigate cost pressures and leverage demand in a resilient labor market. The forthcoming economic data will be instrumental in shaping market sentiment as we enter 2025.