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Growth Team Weekly Investment Insights
Following a break, we’re excited to resume our Growth Team insights series. In this post, we check on the macroeconomic data driving markets so far in 2025.
In terms of growth, the narrative has been slight signs of weakness, including the labor market, the Institute for Supply Management’s (ISM) services report, retail spending and credit card debt levels. Meanwhile, inflation remains at stubbornly high levels, while looming concerns about inflationary pressures from the incoming administration remain top of mind.
Amid economic weakness and elevated inflation, a term we haven’t heard in a while is reemerging…stagflation.
We start with the labor market. The most recent employment report showed nonfarm payrolls weakness as the economy added 143,000 jobs in January, lagging expectations of 167,500. However, despite the soft jobs number, the unemployment rate dropped from 4.1% to 4.0%, and average hourly earnings increased by 0.5% versus expectations of 0.3%.
Looking at the latest ISM purchasing managers’ indices (PMIs), the picture has become more nuanced. On the bright side, the manufacturing index moved into expansion territory. However, the services index, while still indicating expansion, decelerated meaningfully below expectations of a reading of 54.0.
Retail sales fell 0.9% in January relative to December versus expectations of 0.0%.
Also making headlines from a consumer health standpoint was US consumer debt in delinquency from The Federal Reserve Bank of New York. While the report showed that the delinquency rate continued its ascent, now at 3.6%, it remained well below pre-pandemic levels.
And to wrap up, in Q4 2024, annual US real GDP growth slowed to 2.3% from Q2 and Q3 at 3%.
Looking at the most recent inflation results, the headline consumer price index (CPI) rose 0.5% in January, and the core rate rose 0.4%, both ahead of expectations. On a year-over-year basis, headline CPI rose 3.0% in January, up from 2.9% in January, while the core reading rose 3.3%, which was also up from January.
On the bright side, housing inflation continued to moderate to 4.4%, down from 4.6% in January.
Percolating in the background are fears that policies from the incoming administration, such as higher tariffs and a crackdown on immigration, will prove inflationary. Year-ahead inflation expectations, as measured by the University of Michigan survey, rose to 3.3% from 2.8% last month.
After digesting all of this data over the past couple of months, the market thinks the Fed will keep rates steady at its March and May meetings, with the first potential cut coming in June.
Meanwhile, bottom-up company earnings logged solid results in Q4 2024, and we will dig deeper into some of the major takeaways next week.
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