With the government data flowing once again, most incoming data points to a resilient economy, although jobs remain a key area to watch. Between gaps in data collection during the government shutdown and delayed releases, it’s likely there won’t be a “clean” read on the economy until perhaps mid-February. For instance, consumer prices have already caught up, but wholesale prices and retail sales are through November and new home sales figures are from October.
The December jobs report was mixed. On the positive side, there was an improvement in the unemployment rate and wage growth. Yet, overall job growth was lackluster and remains concentrated in a handful of industries, while hours worked and the labor participation rate both declined.
To sum up the labor trend during the past six months in a single word – sloppy. That’s understandable given the disruptions by tariffs and trade, the Department of Government Efficiency (DOGE) initiative impacting federal workers, and the government shutdown. We’ll need a few more months of data to confirm that the recent labor market weakness was related to the government shutdown and, therefore, temporary.
Aside from jobs, much of the other economic data – from retail sales and travel traffic to weekly jobless claims – reflect a steady economy, with the exceptions of housing and manufacturing. Moreover, inflation readings remain generally well behaved, due in part to lower gasoline prices. We expect an uptick in U.S. growth to 2.3% in 2026 from four primary drivers – tax incentives for consumers and businesses, marginally lower borrowing costs thanks to Federal Reserve (Fed) easing, steadier trade policy and tariffs, and continued investment in AI and technology spending.
We expect the Fed to hold steady at the January 28th meeting as policymakers await more data to confirm that recent labor softness is temporary, particularly after having cut rates at the past three meetings, including December. Looking ahead, we anticipate the Fed will continue lowering the federal funds rate to a more neutral stance near 3% over the course of 2026.
Bottom line:
The U.S. economy remains resilient, with an uptick in growth to 2.3% expected in 2026. Labor market trends over the past six months have been sloppy, disrupted by tariffs, DOGE, and data delays from the government shutdown. Be prepared to wait until mid-February for a clean read on the economy.
