Year-End Economic Snapshot
The US economy closed 2025 on a note of cautious optimism, with markets reflecting resilience driven by technology investments and steady consumer spending. On December 29, the final trading day, key indicators pointed to moderate expansion despite labor market softening and policy uncertainties.[3]
Atlanta Fed GDPNow model estimates Q3 2025 growth at 3.9% annualized, signaling strong momentum even as official releases faced delays from earlier government shutdowns.[1][2]
Services Sector Holds Steady
The ISM non-manufacturing PMI for November eased to 52.0, remaining above the 50 expansion threshold despite falling short of expectations at 52.4. This indicates the services-heavy core of the economy continues to grow, though at a slower pace amid Fed meeting anticipation.[2]
Businesses reported cautious demand, with AI-related capital spending surpassing $400 billion in 2025 projections, bolstering overall activity.[2]
Labor Market Cools Gradually
- Unemployment hovered around 4.4% based on recent reports and alternative measures.[1][4][5]
- November ADP private payrolls showed declines, while Challenger reported planned job cuts at 71,321, down 53% month-on-month.[5]
- Job vacancies remain historically elevated but are cooling, reflecting balanced labor demand.[3]
These trends suggest a softening but stable labor market, influencing trader bets on Federal Reserve rate cuts.[2][5]
Fed Policy and Inflation Outlook
Markets priced in near-certainty for a Fed rate cut at the December meeting, with the federal funds target range at 3.75%-4.00% post-October adjustment. Inflation held around 3%, supporting a 'soft landing' narrative despite tariff pressures.[2]
OECD forecasts US growth at 2.0% for 2025, slowing to 1.7% in 2026, with AI investment and fiscal incentives like the OBBBA providing offsets.[2]
Housing and Mortgage Trends
30-year mortgage rates averaged 6.19% in early December, easing from earlier highs but keeping affordability constrained. This partial relief supports housing demand amid broader economic resilience.[5]
Tech and Sector Highlights
Technology sectors led gains, with AI capital spending and productivity boosts protecting margins in a high-cost environment. Energy prices stayed seasonally calm, and holiday consumer spending remained stable without excess.[3][6]
- UCLA Anderson describes the economy as 'slowing but resilient,' highlighting fiscal support and tech waves.[2]
- Q2 2025 real GDP grew 3.8% annualized per BEA's third estimate, driven by consumption.[4]
As 2025 ends, the economy balances growth around 2% with controlled inflation, setting the stage for 2026 policy debates.[2][3]
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