December Economic Update

Market Summary

November began with broad, yet relatively modest market declines and delivered mixed signals with new private payroll data showed an unexpected drop, manufacturing activity remained in contraction, and tariff-related cost pressures continued to weigh on business sentiment. By the end of the month, the major US market averages had mixed results with the S&P 500 rebounding to add 0.13%, the Nasdaq 100 remaining in the red with a -1.64% decline, and the small-cap Russell 2000 posting a 0.84% return. (1)

Manufacturing, Trade, & Tariffs

The latest data show the U.S. manufacturing sector remains under pressure — the Institute for Supply Management (ISM) manufacturing index slipped to 48.2 in November, signaling contraction. New orders remain weak. A number of forecasters now see the broader economy entering a “mixed-signals” phase: service-sector resilience contrasts with manufacturing softness and hiring weakness. The broader economy continues to generate mixed signals: while some service-sector activity still holds up, trade uncertainty and high input costs are weighing on manufacturing and investment decisions. (2,3)

Fed and policymaker commentary highlighted trade policy and tariffs are feeding into firms’ unit costs and price-setting — a contributor to stickier inflation in some sectors with policy-driven cost pressures remain a major drag. In a November speech, a senior Fed official noted that many firms attribute roughly 40% of 2025–2026 unit cost growth to tariffs and emphasized the risk that price pressures could remain elevated even as the labor market softens. Meanwhile, tariffs are still adding to consumer-price pressures, meaning price inflation may linger even after trade policies stabilize. (4)

Labor Market

ADP reported private payrolls fell by 32,000 in November, a surprising drop that highlights weakening hiring momentum — notably among small businesses. This reading adds to signs the labor market is softening after a strong multi-year run. Planned job cuts moderated in November to 71,321, down from October’s spike but still elevated versus a year ago; layoffs remain concentrated in restructuring and a few large sectors. Weekly initial claims showed variability but other alternate estimates, including some Fed regional models, point to a still resilient but cooling employment picture. The earlier shutdown delayed official BLS releases, complicating comparisons. (5)

Looking Forward…

On December 10, we will receive the last interest rate decision of the year from the Federal Reserve. Both market participants and the Federal Reserve officials themselves are divided regarding whether the decision will be made to cut rates by another 0.25% or keep them at current levels. The Fed’s Minutes from their last meeting, which recaps why policy decisions were made and how which side participants voted, showed one of the most divided Fed Boards we have seen in decades with wide-ranging opinions for what the Fed should do in December.

With manufacturing contracting and hiring losing momentum, growth looks likely to be moderating into the first quarter of the New Year. Tariff-related cost pressures will likely mean inflation may not fall as quickly as a pure demand slowdown would suggest. That combination keeps policy decisions—and market volatility—in play.

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Monthly Financial Tip:

One way to save on auto insurance premiums is to raise your deductible. In some cases, that could lower your annual premium by 10% or more. Of course, you must be able to handle the larger deductible if damage occurs.

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Citations:

1. Schwab, Nov 30, 2025

2. Reuters, Dec 01, 2025

3. Deloitte, Nov 24,2025

4. Fed Bank of Atlanta, Nov 12, 2025

5. Reuters, Dec 03 & 04, 2025

Disclaimers:

This post has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. Bob Lawson is not engaged in rendering legal or accounting services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.