US Economy January 2025

Markets closed out 2024 with losses for the month but strong gains for the year, with the S&P up 23.31%, the tech-heavy Nasdaq up 28.64% and the DOW up 12.88%. All three indexes also turned in positive performances for the fourth quarter. Solid corporate earnings, the fact that the economy avoided recession, receding inflation and interest rate cuts from the Fed all pushed the market higher. There’s often a bump at the end of the year that’s called “The Santa Claus Rally” that generally foretells a positive year ahead. But a down December isn’t necessarily bad news; the average return the year after is almost 6.0%. The downturn at the end of December was primarily due to investors taking profits before the end of the year.
 
Consumer Spending Rises 0.4%
Consumer spending rose a solid 0.4% in November and was up 3.7% year over year but spending for October was revised down from 0.4% to 0.3%.The increase was slightly below economists’ expectations. Consumer spending was up 3.7% year over year. Core consumer spending was up 0.3% in November after inching up just 0.1% in October and 3.1% year over year, up from 2.7% in October. Personal income rose 0.3%, with wages shooting 0.6%. Disposable income after accounting for inflation rose 0.2% as some consumers tapped their savings to fund purchases. The saving rate dipped to 4.4% from 4.5% in October. Goods prices were unchanged in November and services prices continued to trend up.
 
Consumer Prices Rise 0.3%
The Consumer Price Index (CPI) rose 0.3% in November after rising 0.2% in October. Year-over-year inflation rose to 2.7% after rising to 2.6% in October. Core prices rose 0.3% for the third consecutive month and were up 3.3% year over year. Core CPI inflation  peaked at a 40-year-high of 6.6% in September 2022. The personal consumption expenditures (PCE) price index rose 0.1% after an unrevised 0.2% gain in October. In the 12 months through November, the PCE price index increased 2.4% after being up 2.3% in October. The Fed tracks the PCE price measures for their 2% inflation target.
 
Consumer Confidence Drops to 104.7

 

• „The New York-based Conference Board’s Consumer Confidence Index dropped to 104.7 in December after rising to  117.7 in November.*
  
• „The Present Situation Index fell 1.2 points to 140.2.
  
• „The Expectations Index, tumbled 12.6 points to 81.1, just above the threshold of 80 that usually signals a recession ahead.
  
• „The reading has now been above 80 for the past four months.
  
• „Consumer Confidence fell to 86.9 at the onset of the pandemic in March 2020.
  

*A level of 90 indicates that the economy is on solid footing; a level of 100 or more indicates growth. Analysts caution that the real driver behind consumer spending is income growth and that labor market trends are a more accurate predictor of consumer behavior.
 
Unemployment Falls to 4.1%

• „The unemployment rate fell to 4.1% in December after ticking up to 4.2% in November. Unemployment was 3.5% at the beginning of the pandemic in March 2020.
  
• „The economy added a robust 256,000 new jobs after adding  227,000 new jobs in November. Job growth was above expectations. It was the 27th consecutive month of job growth.
  
• „Employers added 2.2 million jobs for all of 2024, or an average 186,000 a month. That's down from 3 million, or an average 251,000 a month, in 2023 but still surprisingly strong.
  
• „Retail added 43,000, bouncing back from disappointing holiday hires in November.
  
• „Job growth is expected to slow in 2025.
  
• „Average hourly earnings increased 0.3% to $35.69 and were up 3.9% year over year.
  

 
Chicago PMI Falls to 37
The Chicago PMI fell to 37 in December after falling to 40 in November, leaving the index still below the break-even point of 50. The Index has been below 50 for the past 25 months. Looking back to when the series began in 1967, the PMI has ranged from 20.7 in June 1980 to 81.0 in November 1973. 
 
Wholesale Prices Rise 0.4%
The Producer Price Index (PPI) rose 0.4% in November after rising an upwardly revised 0.3% in October. The PPI was up 3.0% year over year, the highest year-over-year increase since February 2023.  Prices for services rose 0.2% while prices for goods fell 0.2%. Core producer prices, which exclude prices for food, energy and trade services, rose 0.2% in November after rising 0.3% in October. Core prices were up 3.4% year over  year, down slightly from 3.5% in October. PPI peaked at an 11.7% year-over-year increase in March 2022.
 
Q3 GDP Grows 3.1%
Q3 GDP growth was revised up to 3.1% in December after being unchanged at 2.8% in November, according to the third reading from the Commerce Department. Consumer spending, which accounts for about two-thirds of US economic activity, expanded 3.7%, up from the previous third-quarter estimate of 3.5%. Exports climbed 9.6%. Business investment grew a lackluster 0.8%, but investment in equipment expanded 10.8%. Federal government spending and investment jumped 8.9%, including a 13.9% surge in defense spending.
 
Fed Cuts Rates 0.25%
The Fed approved another quarter-point rate cut in mid-December, bringing the benchmark rate to between 4.25% and 4.5%. The decision was not unanimous, with one Fed official voting to keep rates the same. The Fed now foresees just two rate cuts in 2025, down from the four they envisioned in September. That would lower the federal funds rate by just half a percentage point next year, to a range of 3.75% to 4%, according to their median estimate. And they predict another two cuts in 2026, bringing the rate to about 3.4%, a half-point higher than previously forecast. They also predicted sturdier growth, higher inflation and a more robust job market both this year and in 2025, an outlook that supports fewer rate decreases.

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