Weekly Economic Briefing
Week Ending December 26, 2025
The Big Picture: Growth Surprises Upside
The American economy is defying the slowdown narrative. Q3 GDP was revised upward to a blistering 4.3%, smashing the 3.3% consensus and proving that the growth engine remains intact. While the manufacturing sector shows signs of fatigue—evidenced by a 2.2% drop in Durable Goods orders—the broader economic foundation is rock solid.
Labor remains the linchpin. Initial Jobless Claims dropped to 214k, signaling that despite headline noise, employers are hoarding talent. With Core PCE at 2.9%, inflation is sticky but stable. Investors betting on an imminent recession are fighting the tape; the data supports a "higher-for-longer" growth regime.
Analyst Takeaways
- GDP Growth: 4.3% is not a recessionary print. It is a sign of robust, consumption-led expansion.
- Labor Strength: Claims at 214k underscore a tight labor market, giving the consumer confidence to keep spending.
- Inflation: GDP Price Index at 3.7% and Core PCE at 2.9% mean the Fed cannot cut rates aggressively without risking a reflationary spark.
US Macro Data Analysis
Growth & Activity
The headline story is GDP at 4.3% (vs 3.8% prev). This acceleration contradicts the "soft landing" view—we aren't landing; we are flying. However, the dichotomy continues: Industrial Production eked out a 0.2% gain, but Durable Goods plunged -2.2%, highlighting a split between services/consumption strength and capex weakness.
Labor Market Health
Initial Jobless Claims came in at 214k, beating the 224k forecast. Continuing claims rose slightly to 1,923k, but the leading edge of the labor market shows zero distress. This level of claims is historically consistent with an expansion, not a contraction.
Price Stability
Inflation remains persistent. Core PCE held at 2.90%, and the GDP Price Index hit 3.7% (significantly above the 2.7% consensus). Price pressures have moderated from their peaks but are settling well above the Fed's 2% target.
Macro Scorecard
| Indicator | Value | Signal |
|---|---|---|
| Inflation (Prices) ↔️ STICKY | ||
| GDP Price Index (Q3) | 3.7% | Hot (Beat Cons) |
| Core PCE (Q3) | 2.90% | Elevated |
| Economic Activity 📈 EXPANDING | ||
| GDP Annualized (Q3) | 4.3% | Surge (Beat Cons) |
| Ind. Production (Nov) | 0.2% | Positive |
| Durable Goods (Oct) | -2.2% | Contraction |
| CB Consumer Conf. (Dec) | 89.1 | Softening |
| Labor Market 💪 STRONG | ||
| Initial Jobless Claims | 214k | Bullish (Beat) |
| Continuing Claims | 1,923k | Stable |
Interest Rates & Auctions
| Instrument | Yield/Rate | Trend |
|---|---|---|
| Fed Funds Rate | 3.50% - 3.75% | Easing |
| 2-Year Note (Auction) | 3.499% | Anchored |
| 5-Year Note (Auction) | 3.747% | Steepening |
| 7-Year Note (Auction) | 3.930% | Rising |
| 10-Year Treasury | 4.19% | Rangebound |
*Auctions this week cleared with healthy demand, though yields are inching up across the curve as 4.3% GDP forces the market to rethink the pace of future Fed cuts.
Energy & Liquidity
Energy Check: Baker Hughes reports a slight uptick in total rig counts (545 vs 542 prev), signaling potential supply stability. Speculative positioning in Crude remains positive.
Market Flow: S&P 500 speculative net positions remain net short (-166.0K), potentially setting up a squeeze if economic data continues to surprise to the upside.
Cycle Analysis: Historical Context
We utilize 3-year exponential moving averages (EMA) to strip away weekly noise. An honest assessment of the current dashboard reveals a rare divergence: Growth is accelerating (GDP 4.3%) while Labor is loosening (Unemployment 4.6%).
The Data Signals
- Inflation (Core PCE): At 2.9%, price growth has plateaued above the 2% target. This signals structural "stickiness" rather than a straight-line return to low inflation.
- Labor (Unemployment): The rise to 4.6% has crossed above the 3-year trend. Typically, this is a recession warning. However, occurring alongside 4.3% GDP, it suggests a surge in Productivity (Output > Hours Worked).
- Yield Curve (2s10s): The curve has steepened to +67 bps, historically signaling the end of restrictive policy and a return to healthy term premia.
- 10-Year Treasury: Trading at 4.19%, yields are rangebound below trend. The bond market is validating the "Growth with Disinflation" narrative, despite the sticky PCE print.
The Historical Parallel: 1995-1996
The data profile—specifically the decoupling of robust GDP growth from a cooling labor market—most closely mirrors the Productivity Pivot of 1995-1996.
In 1995, the Fed cut rates ("Insurance Cut") despite inflation holding near 3%, sparked by fears of a slowdown. The economy responded not with inflation, but with a massive productivity boom that allowed for high growth without immediate wage-price spirals.
Sector Performance (1995-1996 Era)
- Winners: Financials (benefiting from the steepening curve) and Technology/Industrials (driven by the productivity cap-ex cycle).
- Losers: Defensive sectors (Utilities, Staples) underperformed as the "Recession Risk" was priced out of the market.