Economic Update 1-8

Welcome everyone to 2026. Hopefully, you had a good and fun Christmas and New Year’s holiday break and are now settling back into your normal routines. It is certainly colder here in Omaha today than during the time I spent in Florida. However, it is always a good feeling to get the new year started and to begin assessing the challenges ahead. We hope you will once again take “the ride” with us as we view and interpret upcoming economic trends and how the financial markets react accordingly.

The beginning of each year brings a certain amount of optimism, and this year is no exception. However, we are still dealing with certain lingering effects of last year’s government shutdown, which ran from early October through mid-November. As a result, the reporting of some economic data continues to lag by several months.  For instance, this week we saw the release of New Orders for U.S. Manufactured Goods for October, which fell by 1.3%. This compared unfavorably to the 0.2% increase in September and the 1.3% gain in August. However, this decline can largely be traced back to sectors negatively impacted by the government shutdown. We fully anticipate a positive turnaround once more recent data are released. The gains we have seen in employment within the manufacturing sector appear to support this expectation.

Another economic release this week, while also lagging, was extremely interesting. The U.S. Trade Deficit for October fell sharply to $29.4 billion. This was a major decline from the $48.1 billion deficit in September and the smallest trade gap since June of 2009. While the direct correlation to the government shutdown is more difficult to follow, exports rose to a record $302 billion. We have seen some significant swings as various levels of tariffs have been imposed on certain goods and specific countries. While I expect the trade deficit to rise somewhat as new releases are made, this will be a major economic trend to follow.

Today, we had the Nonfarm Labor Productivity report for the third quarter show a rise of 4.9%. This was well above the second quarter’s gain of 4.1% and the forecasted level of 3%. This is the highest productivity gain in two years. The sharp rise in productivity also impacts other economic factors in a positive manner. Unit Labor Costs for the third quarter of last year declined by 1.9%. This was obviously well below the forecasted increase of 1.0%. The critical nature of this report indicates that overall inflation should be falling as well. We have been seeing this occur and could possibly give The Fed additional confirmation to lower interest rates even further.

That is all we have so far for the first week of the new year. However, stay tuned as we are just getting started in 2026. As we closed out last year with a positive outlook for both the equity and fixed-income markets, we begin this year with the same expectations. While we are looking to adjust certain weightings within various economic sectors of the equity market, our top-down approach remains constant. One thing we will have to address over the coming months is how our new relationship with Venezuela could impact the financial markets. We have some initial views but will be studying the potential changes closely.

We wish the best for each of you as you begin the journey through 2026. Let’s make this another Great Year.