The U.S. economy ended 2024 on a strong footing, with robust data from manufacturing, housing, and retail signaling resilience even in the face of higher interest rates. While inflation remains elevated above the Fed’s target, cooling trends in some areas could support a policy pause, setting the stage for a potential soft landing in 2025.
Key Insights:
- U.S. manufacturing production rose +0.6% m/m in December, supported by a rebound in aircraft production, while the Philly Fed Index in January showed its strongest reading since April 2021.
- December housing starts surged +15.8% m/m to a 1.5 million SAAR, with single-unit permits up +1.6%. Despite elevated mortgage rates, the NAHB homebuilder sentiment index also improved in January.
- Retail sales increased +0.4% month-over-month in December, with the core retail control group up +0.7%, aligning with reports of solid holiday sales from the Fed’s Beige Book.
- December CPI rose +0.4% month-over-month (2.9% year-over-year), and core CPI was up +0.2% m/m (3.2% y/y). The recent deceleration in services inflation marks the slowest pace since March 2022.
- Q4 S&P 500 earnings growth recently reached +10.7%, driven by Financials at +26.4%.
- Equity ETFs have seen +$265B in inflows since Election Day, led by growth strategies and ultra-short duration fixed income. Meanwhile, international equities and commodities like gold have also shown notable trends.
- With inflation still above the 2% target but showing signs of cooling, the Fed may hold steady for now. A rate cut remains possible in June, contingent on further economic slowing.