{"id":219028,"date":"2025-02-24T10:00:00","date_gmt":"2025-02-24T15:00:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=219028"},"modified":"2025-03-13T16:18:14","modified_gmt":"2025-03-13T20:18:14","slug":"economic-update-february-24-2025","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-february-24-2025\/","title":{"rendered":"Economic Update: February 24, 2025"},"content":{"rendered":"\n

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

The U.S. economy expanded at a healthy 2.3% q\/q saar during the fourth quarter, bringing real economic growth to 2.8% in 2024. Consumer spending continued to power the economy forward, growing at an exceptional 4.2%, while government spending moderated. Business fixed investment turned negative for the first time in seven quarters due to declines in equipment and structures spending while residential investment rose after lagging for two quarters. Elsewhere, inventories were a large drag on economic activity. While policy uncertainty remains, economic momentum appears solid.<\/p>\n\n\n\n

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

The January Jobs report, while noisy, showed a labor market with solid momentum. Nonfarm payrolls rose by a weaker-than-expected 143k, although adverse weather conditions may have had an impact. After revisions, job growth in 2024 was weaker than initially reported. That said, upward revisions to November and December indicate stronger momentum toward the end of 2024. Services sectors continued to dominate while employment in goods-producing sectors was unchanged. Elsewhere, the unemployment rate fell to 4.0% and wage growth picked up to 0.5% m\/m and 4.1% y\/y. While modestly softer, job gains in 2024 were able to support solid economic activity. Absent any shocks, 2025 should be the same.<\/p>\n\n\n\n

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

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

With about 85% of market cap having reported, our current estimate for pro forma earnings per share is $64.67. If realized, this would represent growth of 17.0% y\/y and 5.4% q\/q. Looking at the three main sources of EPS growth, sales, margins and shares are expected to contribute 5.5, 12.4 and -0.9 percentage points, respectively. Earnings continue to broaden out, with the S&P 500 ex-Magnificent 7 earnings set to grow by 13% y\/y vs. 30% for the Magnificent 7. Results so far have been solid with 77% of companies beating on earnings and 65% beating on revenue, in-line with 10-year averages. As 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

The January CPI report showed the headline figure increasing by 0.5% m\/m (3.0% y\/y), surpassing consensus by 20bps, while core CPI rose 0.4% (3.3%). Core inflation has sustained a 3.3% annual rate for five of the past six months. Unlike previous months, core goods were not a detractor, and energy prices continued to climb, rising 1.1%. This report was a hawkish surprise, and prices could become more volatile in coming months as tariff hikes may begin to flow through the data. While inflation is expected to eventually return to 2%, there are growing concerns that it may take longer, especially given the current high pace of growth and policy risks.<\/p>\n\n\n\n

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

As expected, the FOMC decided to leave the federal funds rate unchanged at 4.25%-4.50% during its first meeting of 2025, ending a three-meeting streak of rate cuts. Changes to the statement language tilted modestly hawkish although Chair Powell described the changes as tweaks intended to \u201cclean up\u201d the language rather than more meaningful signals. With solid economic activity, a steady labor market, and inflation moving higher in recent months, there were few reasons to ease policy further. Moreover, with uncertainty around tariffs and fiscal policy continuing to cloud the outlook, the Committee is stressing patience and will likely remain on pause for a while.<\/p>\n\n\n\n

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