Everyday Economics: A quiet data week, but loud signals for the economy - Insurance News | InsuranceNewsNet

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December 24, 2025 Newswires
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Everyday Economics: A quiet data week, but loud signals for the economy

ORPHE DIVOUNGUYPerry County Tribune

(The Center Square) — With Christmas approaching, the coming week will be light on fresh economic data. That does not mean markets — or policymakers — are flying blind. Last week's inflation and labor market reports, while noisy, still offer important clues about where the economy stands as the year comes to a close.

The picture that emerges is uncomfortable: inflation is likely to remain sticky even as the labor market shows clear signs of strain. That combination leaves the Federal Reserve increasingly stuck in the middle.

Start with inflation. The latest consumer price index (CPI) report appeared to show renewed progress, with headline inflation easing on a month-to-month basis. But that improvement deserves scrutiny. Part of the apparent disinflation reflects a downward bias introduced by the Bureau of Labor Statistics' carry-forward methodology, which assumes unchanged prices when data collection is delayed or missing. When inflation is rising at the margin, that assumption mechanically understates price growth — and the longer it persists, the larger the distortion becomes.

Beneath the surface, inflation pressures remain uneven. Goods prices are no longer falling consistently, with energy prices and new and used vehicle prices moving higher in the latest report. Those increases were partially offset by easing shelter inflation, which continues to decelerate as market rents feed into official housing costs with a lag. Housing disinflation should continue to help in the months ahead, but it is unlikely to fully offset renewed pressure in goods prices. The result is inflation that is cooling, but still sticky, and not yet convincingly on a path back to 2%.

The labor market tells a similar story — noisy, but increasingly fragile, with job gains more likely to be revised downward than upward.

The most recent employment report showed payroll employment rising by 64,000, alongside an increase in the civilian labor force and a higher unemployment rate. On the surface, that looks acceptable: more jobs and more people either working or actively looking for work.

A closer look, however, suggests the labor market is late-cycle. Job gains remain positive, but they are becoming less evenly distributed. Several cyclical sectors — including manufacturing and parts of transportation and retail — are flat or shedding jobs, while gains are concentrated in a narrower set of industries. That pattern has appeared repeatedly in past expansions as growth slows.

The divergence between the two major labor market surveys reinforces that signal. Payroll employment comes from the establishment survey and counts jobs. The unemployment rate comes from the household survey and tracks people. The household survey is noisier month to month, but historically it has often detected turning points earlier — especially when unemployment begins to rise even as payroll growth remains positive.

That dynamic is now in place. The unemployment rate has climbed to 4.6%, its highest level in five years. At the same time, job openings have fallen below the number of unemployed workers — a configuration that becomes far more common late in the business cycle and in the 12 to 18 months preceding recessions. In prior cycles, similar conditions were followed by further slowing in payroll growth and downward revisions to earlier job gains.

Wage growth adds another piece to the picture. Average hourly earnings are rising at roughly 3.5% year over year, the slowest pace in four years and broadly back to pre-pandemic norms. That is welcome news for inflation, but it also signals diminishing labor market tightness.

Policymakers and markets appear to be taking these signals in stride. Following last week's data, futures markets assign roughly a 22% probability to a rate cut at the Federal Open Market Committee's January meeting, slightly lower than before the CPI and jobs reports were released. That cautious pricing aligns with the Fed's own assessment that job gains have slowed, unemployment has edged higher, and inflation remains somewhat elevated, even as downside risks to employment have increased.

With little new data ahead, the focus now shifts from headline volatility to underlying trends. Those trends point to sticky inflation alongside a labor market that continues to loosen, making it difficult for the Fed to justify immediate action in either direction.

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