{"id":236042,"date":"2025-12-15T10:00:00","date_gmt":"2025-12-15T15:00:00","guid":{"rendered":"https:\/\/ibkrcampus.com\/campus\/?p=236042"},"modified":"2025-12-16T05:05:39","modified_gmt":"2025-12-16T10:05:39","slug":"economic-update-week-of-december-15-2025","status":"publish","type":"post","link":"https:\/\/www.interactivebrokers.com\/campus\/traders-insight\/securities\/macro\/economic-update-week-of-december-15-2025\/","title":{"rendered":"Economic Update: Week of December 15, 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

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

The 3Q25 earnings season has come to a close. EPS grew 13.0% y\/y, well above initial expectations of 7.3%. Looking at the three main sources of EPS growth, sales, margins and shares contributed 7.6, 6.4 and -1.0 percentage points, respectively. From a sector perspective, tech and financials are leading the pack, while energy companies struggle through declining oil prices. Consumer companies 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. However, inflation excluding shelter accelerated. Elsewhere, headline and core PCE both rose 2.8% y\/y. 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

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

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

At its last meeting of the year, the Federal Reserve voted to cut the federal funds rate by 25bps to a target range of 3.50% – 3.75%. Three voting members dissented, with Miran voting in favor of a 50bps cut while Schmid and Goolsbee voted to hold rates steady. However, four nonvoting members of the FOMC who may rotate into voting seats next year submitted projections in favor of no December rate cut. Notably, the tweak in the statement stating \u201cin considering the extent and timing of additional adjustments\u201d to policy rates suggests a January reduction is unlikely, while the moderate changes to the committee\u2019s economic projections leaned hawkish. The median interest rate outlook maintained just one cut for next year and in 2027. While the Fed still has an easing bias, it may be less active in adjusting policy in 2026.<\/p>\n\n\n\n

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