U.S. economy shows mixed signals ahead of likely Fed cut

Hi, welcome to market weekend review for the week ending December 5th, 2025. I'm Paul Idelman, global chief investment strategist here at uh Russell Investments in Seattle. Um what I wanted to highlight this week were three things. Uh some developments around uh US economic data ahead of the Federal Reserves uh meeting uh next week. Uh second uh some of the details behind the UK budget that was announced uh last week when we were offline for the Thanksgiving holiday here in the United States. And then third and finally a quick update on uh markets uh which appear to be ending the week higher. Uh starting with the US economic data flow say on balance uh the growth picture was mixed this week. On the more negative side of the ledger, we had new employment data from uh the private sector data provider ADP, which indicated a potential contraction in US employment for the month of November, particularly amongst smaller firms. I would caveat that with an observation. If you zoom out, uh the ADP data looks more like a plateauing labor market than one that is rolling over more sharply into a recession. But nevertheless, the news was downbeat. On the more positive side of the ledger, I'd say three things uh stood out to me on the week. First, uh the ISM services survey for the month of November showed pretty steady, healthy economic growth in a very services-driven US economy uh going into the fourth quarter here, which I think was encouraging. Uh second uh the initial jobless claims data with a lot of focus on if and how much the labor market is deteriorating here showed initial jobless claims remaining uh close to historically low levels without that much evidence of a meaningful increase in layoffs here. Uh and then third and finally, we're starting to get some color around what the holiday shopping season is shaping up like here in the United States, including data for uh Black Friday and Cyber Monday. And overall, I think those results look pretty solid uh and supportive of a consumer that remains engaged here towards the end of 2025. As we kind of map that on to the Fed's meeting next week for the month of December, we had seen the meeting as a pretty close call with some potential that the Fed might keep rates on hold in December. But I think particularly following some guidance that we got from uh Vice Chair Williams right before um the speakers went into blackout ahead of this meeting, Williams supported a near-term cut and we now expect the the Fed to move uh next week with a 25 basis point rate cut. I'd say as we kind of look out a little bit more broadly, our expectations for a pretty healthy US economy going into 2026. And on the back of that, we think the Fed is arguably closer to the end than uh the beginning of uh their easing cycle here uh with the rate cutting cycle likely to slow or potentially even stop into early 2026. Um second, moving into the UK budget news, um the details came out shortly before the US Thanksgiving holiday last week. I'd say the extent of fiscal tightening in the UK looking out into 2030 uh with tax increases of about 26 billion uh British pounds was roughly speaking in line with um expectations. However, in addition to the budget news, we got uh updated growth projections from uh the UK Office for Budget Responsibility that showed a downgrade to the growth profile and I think that helped to reinforce market expectations for the Bank of England to be cutting interest rates going forward. Uh and on the back of that um the news supported a moderate decline in uh guilt yields uh last week. Uh third and finally just as a quick touch point on market developments over the week uh global equities as measured by the MEI country world index are up roughly 4/10en of a percent. So a modest uh upward move on the week through Thursday's close here in Seattle. And on the back of that, most uh major global equity markets are now entering the final month of the year on a pretty high note, which is uh nice to see. I would just quickly flag our uh global market outlook that was released uh this week. I think that's a good resource to go to for more detail on uh the themes and opportunities that we're seeing as driving markets into 2026 and beyond. So uh thanks for tuning in. That's all I have for today. Hope you have a great one. Bye. Hi, I'm Sophie Antalji, head of portfolio and business consulting at Russell Investments. If you liked what you just saw and heard, consider subscribing to our YouTube channel or check us out on LinkedIn. Thanks for tuning in.