{"id":235329,"date":"2025-12-01T09:45:00","date_gmt":"2025-12-01T14:45:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=235329"},"modified":"2025-12-03T02:58:54","modified_gmt":"2025-12-03T07:58:54","slug":"economic-update-week-of-december-1-2025","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/economic-update-week-of-december-1-2025\/","title":{"rendered":"Economic Update: Week of December 1, 2025"},"content":{"rendered":"\n

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

The U.S. economy grew 3.8% annualized in 2Q25, although trade distortions masked slowing momentum. After revisions, consumer spending rose by a solid 2.5%, while business fixed investment and government spending rose 4.4% and shrunk 0.1%, respectively. The housing market remained challenged as residential fixed investment fell 5.1%. Turning to the more volatile components, inventories fell, removing 3.4%pts from GDP growth, while a sharp decline in imports caused net exports to boost growth by 4.8%pts. Excluding these components, real final sales to domestic purchasers rose 1.9% annualized in 1H25 vs. 3.3% in 2H24. All to say, while the U.S. economy has been resilient, policy uncertainty weighed on economic momentum in 1H25.<\/p>\n\n\n\n

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

The September Jobs report sent mixed signals with payroll growth accelerating but unemployment rising. Nonfarm payrolls rose by 119k, more than double expectations but by no means a barn burner by historical standards. Downward revisions helped temper September strength, with 33k jobs removed from the prior two months. Private payroll growth broadened across sectors, although federal employment contracted for an eighth straight month. Elsewhere, the unemployment rate rose to 4.4% due to a jump in the labor force while wage growth rose by a softer than expected 0.2% m\/m and 3.8% y\/y. There was something for the hawks and the doves in this report, and a December rate cut remains too close to call. That said, the key takeaway from this report is largely consistent with recent signals from other data: Labor market slack is gradually building.<\/p>\n\n\n\n

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

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

The 3Q25 earnings season is almost over. With 96.1% of market cap reporting, consensus is estimating y\/y EPS growth of 13.0%. Looking at the three main sources of EPS growth, sales, margins and shares are expected to contribute 7.7, 6.3 and -1.0 percentage points, respectively. From a sector perspective, tech and financials are leading the pack, while health care and energy companies struggle. The consumer sectors are also under pressure as discerning customers dampen demand and tariffs increase costs.<\/p>\n\n\n\n

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

The September CPI report came in softer than expected with headline and core CPI rising 0.3% and 0.2 m\/m, respectively, and both measures up 3.0% y\/y. At the headline level, much of the strength came from a 4.1% spike in gasoline prices. Core goods prices rose by a firm 0.2% m\/m but remained under control despite tariff pressures. Softer shelter inflation helped limit further gains in core services, which saw inflation slow to 0.2% m\/m. In fact, owners’ equivalent rent rose at its slowest sequential pace since 2020. However, inflation excluding shelter accelerated. Despite the softer report, headline inflation remains above target and is trending unfavorably. This has prompted some members of the FOMC to take a more hawkish stance.<\/p>\n\n\n\n

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

The Federal Reserve voted to lower interest rates by 25bps, lowering the federal funds rate target range to 3.75% to 4.00%. There were both dovish and hawkish dissents, but Chair Powell\u2019s comments leaned hawkish. He emphasized that there were \u201cstrongly differing\u201d views regarding how the Committee should proceed in December, and that the meeting is \u201cfar from\u201d a foregone conclusion. With pressures in the funding market growing more apparent, the Committee announced that it will be ending its QT program on December 1. An improvement in employment conditions or a spike in inflation could keep the Committee on hold, but if conditions evolve as we expect, a December rate cut remains likely. That said, should data disruptions persist into December, the Committee may opt to hold rates steady to wait for more clarity.<\/p>\n\n\n\n

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

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