January 2025

Stephen Zielinski

Economic and Market Highlights

The Economy

  • The International Monetary Fund (IMF) projects global GDP growth at 3.3% for both 2025 and 2026, slightly below the historical average of 3.7% from 2000 to 2019. This forecast includes an upward revision for the United States, offset by downward adjustments in other major economies.
  • The probability of a near-term recession in the U.S. has fallen over the last several quarters. But the U.S. budget deficit, interest expenses, and total debt are expected to remain elevated for years to come.
  • In December 2024, the U.S. labor market payrolls increased with notable gains in health care, government, and social assistance sectors. The unemployment rate remained steady at 4.1%.
  • The Consumer Price Index (CPI) rose 2.9% year-over-year in December, up from 2.7% in November. Core CPI, which excludes food and energy, increased by 3.2% over the last 12 months, indicating elevated levels of inflation persists.
  • The Eurozone’s economic growth is anticipated to reach only 1% in 2025, a 0.2 percentage point downgrade from previous estimates. This adjustment is attributed to persistent weaknesses in manufacturing and exports, alongside political and fiscal uncertainties in key member states. Notably, the Polish economy expanded by some 2.7% and growth was close to expectations unlike the negative surprises seen in the other European countries, including Germany, whose GDP is expected to expand by 0.3%.
  • Emerging markets are projected to maintain a growth rate of approximately 4% over the next two years. However, potential increases in trade protectionism among major economies pose risks to this outlook, potentially dampening GDP growth across these regions.
  • Given the strengthening of the U.S. dollar, both developed and emerging market currencies posted negative returns in 4Q. See Non-U.S. currency performance chart below.
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September – October 2024

Stephen Zielinski

Economic and Market Highlights

The Economy

  • Inflation has notably decreased from its peak of 9.1% in June 2022 to 2.5% in August, showing signs of improvement. In September inflation cooled to 2.4% in the U.S. declining slightly less than expected.
  • Strong September Jobs’ Report for non-farm payrolls rose by 254k, far exceeding the 150k consensus. The unemployment rate fell to 4.1% and wages increased month-on-month.
  • New jobs are concentrated in sectors like leisure, hospitality, healthcare, and government, raising concerns about the quality of full-time employment.
  • Manufacturing measures remained stagnant in September, indicating no significant change, and continues to signal contraction. Manufacturing contraction continues for the 21st month in the last 22 months, one of the longest on record.
  • The annualized GDP growth rate for the previous quarter was unchanged at 3.0% after a slight GDP decline in September after a sharp rise in August.
  • Consumer sentiment was lower as households perceive a weakening job market, which could lead to more cautious spending, impacting growth as consumer spending makes up 70% of GDP.
  • The U.S. Dollar remains relatively strong compared to other major currencies in part because of the slightly higher than expected inflation report in September.
  • In September, the Federal Reserve lowered short-term borrowing rates by 0.50% (50 basis points) loosening monetary policy to encourage businesses and consumers to continue to spend and borrow.
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August – September 2024

Stephen Zielinski

Economic and Market Highlights

The Economy

  • The recent jobs report brought a mix of news. Job growth accelerated to 142,000 positions, while the unemployment rate dipped to 4.2% from July’s 4.3%. However, downward revisions to job gains in previous months suggest softer trends. This report played a key role in the Federal Reserve’s decision to cut short-term interest rates by 50-basis-points (0.50%) in September.
  • Manufacturing continues to struggle, with the ISM Manufacturing Index rising slightly to 47.2 in August from 46.8 in July, but still indicating contraction (below 50). This marks 21 of the last 22 months of manufacturing decline, one of the longest downturns in history.
  • Inflation pressures appear stable. July’s Personal Consumption Expenditures (PCE) price index rose 0.2%, advancing 2.5% year-on-year, while Core PCE inflation also gained 0.2%, reaching 2.6% year-on-year. Consumer spending increased 0.5% in July, while personal income climbed 0.3%. However, the personal savings rate has fallen to 2.9%.
  • Internationally, global growth remains positive. The U.S. economy outperformed expectations with 2.8% growth in Q2, while the Eurozone saw a modest 0.3% quarterly growth. Real GDP in the UK rose by 0.9% for the three months to May 2024, reflecting solid service sector output.
  • Global economic conditions have maintained a cautious sentiment, but U.S. equities rebounded after recent dips due to monetary stimulus created by lower interest rates. Meanwhile, U.S. Treasury yields remain steady, with the 2-year and 10-year yields little changed after this week’s interest rate cut, respectively.
  • Globally, G7 economic data has been sparse, but indicators like the Conference Board’s employment trend index for August and the Atlanta Fed’s GDP now model projecting 2.5% GDP growth for Q3 2024 have alleviated some recession concerns.
  • China’s exports in August surged unexpectedly, hitting a 17-month high with 8.7% YoY growth, defying predictions of a slowdown. Imports, however, remain sluggish due to weak domestic demand, and iron ore prices have dipped below $90/ton, reflecting China’s economic slowdown.
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