{"id":217831,"date":"2025-01-27T09:45:00","date_gmt":"2025-01-27T14:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=217831"},"modified":"2025-01-28T03:53:05","modified_gmt":"2025-01-28T08:53:05","slug":"economic-update-january-27-2025","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-january-27-2025\/","title":{"rendered":"Economic Update: January 27, 2025"},"content":{"rendered":"\n

Growth<\/h2>\n\n\n\n

The U.S. economy expanded at a solid 3.1% saar, notching a second consecutive quarter of above trend growth. Consumer spending continued to power the economy forward, rising 3.7%, while government spending also looked strong. Business fixed investment rose 4.0% while residential investment remained a drag. With businesses likely rushing to build up inventory ahead of the port workers strikes in late September, imports jumped 10.7% and weighed on growth. Overall, despite concerns about the labor market and the manufacturing sector, the U.S. economy remains solid.<\/p>\n\n\n\n

Jobs<\/h2>\n\n\n\n

Ending 2024 on a high note, the December jobs report showed an economy with solid hiring momentum heading into 2025. Nonfarm payrolls rose by 256k, well above expectations of 165k, while revisions removed just 8k jobs from the prior two months. Growth remained dominated by the services sector, with health care and social assistance adding 70k jobs. Job gains were also solid in retail trade and leisure and hospitality. The unemployment rate unexpectedly fell to 4.1%, largely due to a 243k increase in the labor force, while wage growth eased to 0.3% m\/m and 3.9% y\/y. While annual revisions released next month might paint a picture of a modestly softer labor market, solid economic growth should support steady job gains in the coming months.<\/p>\n\n\n\n

NEW THIS WEEK<\/p>\n\n\n\n

Profits<\/h2>\n\n\n\n

4Q24 pro forma earnings per share (EPS) came in at $62.47, representing growth of 12.5% y\/y and 1.3% q\/q. Seven out of 12 sectors are expected to have positive y\/y growth led by Financials, Comm. Services, Tech. and Health Care. Earnings continue to broaden out, with the ex-Magnificent 7 companies set to grow EPS by 9% y\/y and the Mag 7 by 23%. As headline GDP growth slows and y\/y comparisons get tougher, companies’ ability to defend their margins should be an increasingly important driver of earnings growth.<\/p>\n\n\n\n

Inflation<\/h2>\n\n\n\n

At the headline level, the December CPI report showed an expected tick higher in inflation. That said, core CPI rose at a more modest pace, suggesting underlying inflationary pressures remain well managed. Headline CPI rose 0.4% m\/m and 2.9% y\/y, largely due to a spike in energy prices. Excluding food and energy, inflation came in softer than expected, rising 0.2% m\/m and 3.2% y\/y. Core goods inflation was a modest 0.1% m\/m as strength in new and used vehicles was offset by softness elsewhere. Core service inflation rose just 0.2%, although airline fares spiked 3.9% m\/m, likely reflective of a strong holiday travel season. Shelter inflation, responsible for 57% of annual inflation, rose 0.3% m\/m and 4.6% y\/y. As base effects turn more favorable, inflation should continue its downward trend in 2025.<\/p>\n\n\n\n

Rates<\/h2>\n\n\n\n

At its final meeting of 2024, the Federal Reserve voted to cut the federal funds rate by 25bps to a range of 4.25% to 4.5%. That said, statement language and the new Summary of Economic Projections (SEP) leaned hawkish. In acknowledgement of resilient economic growth, diminished downside risks to the labor market and slower progress on disinflation, the updated SEP showed a higher growth and lower unemployment forecast for 2025, and higher inflation forecasts for 2025 and 2026. Moreover, the committee penciled in just 2 rate cuts in 2025 vs. 4 in the September SEP. Importantly, a few members incorporated potential fiscal policies and tariffs into their estimates. That said, the pace of rate cuts, while likely to be more gradual, will continue to hinge on the data until we gain more clarity on President-elect Trump\u2019s policy agenda.<\/p>\n\n\n\n

Risks<\/h2>\n\n\n\n