Economic Update 12-23

We continue to deal with the government recovering from its shutdown, which lasted from October 1 through mid-November. This disruption has been evident in the slow release of economic data, particularly monthly comparisons across various indicators. However, it does appear we are seeing government-controlled data becoming more available on a timely basis.  Nonfarm Payrolls for October showed a decline of 105,000 jobs as seen in the chart below. However, this number was largely driven by a reduction in federal government jobs totaling 162,000. In November, we actually saw a recovery in employment numbers. Net new jobs for the month totaled 64,000. The gains were primarily in the healthcare and construction sectors. We have seen the administration push to reduce the number of employees associated with government and related employment. This has become a critical part of the overall employment picture.

In November, the unemployment rate rose by 0.2% to 4.6%. This was the highest level of unemployment since September of 2021. Average hourly earnings increased 3.5% on a year-over-year basis in November. This represents the lowest growth rate since May of 2021. While the government shutdown clearly had an impact, it was also evident that private industry experienced disruptions in business activity. Fortunately, we saw the average hourly workweek pick up slightly during November. The improvement was from 34.2 hours to 34.3 hours. This is another indication that the economy is beginning to return to a more normal level of activity.

Another critical area associated with the economy is the inflation levels, which we are all dealing with on an ongoing basis. Following the historic inflation highs seen during the previous administration, we continue to see improvement due to a variety of changes brought about under President Trump. The Consumer Price Index (CPI) for November was 2.7% on a trailing twelve-month basis. This was the lowest reading since July and well below the forecasted level of 3.1%. The reduction in oil prices since President Trump took office has been a key variable in the decline of inflation.

Another key component of overall economic activity has been the recent cuts in interest rates by the Fed. Beginning with their September meeting, the Fed has cut the federal funds rate by 75 basis points. While many economists believe the Fed should have been more aggressive in its rate cuts, we have seen some benefits from lower rates across a variety of financial products. We expect this pattern of rate cuts to continue as we move into 2026.

The financial markets have benefited from the end of the government shutdown and lower interest rates as well. The likely uptick in economic growth in the coming year is also a primary contributor to a significant upward move in equity markets. We will continue to keep equity positions as a core portion of our portfolios. The decline in interest rates also supports maintaining our fixed-income holdings. Fortunately, both of these sectors have been positive contributors to our portfolios, and our returns reflect this strength.

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As we begin this Christmas week, we certainly hope each of you have a blessed Christmas.  We have much to be thankful for, and we also hope the New Year brings joy and optimism as we begin the challenges associated with 2026.