Mixed picture

Economic data released last week painted a mixed picture, as continued low jobless claims and higher manufacturing and services indicators were balanced by softer consumer sentiment and fears of higher inflation. 

Initial jobless claims fell from 219,000 to 213,000, back to levels last seen in April 2024. This shows no signs of increased layoffs and may bode well for a strong employment report when it is released in early December. 

The S&P Global services and manufacturing surveys showed an uptick, with the services component particularly strong and well ahead of expectations. Firms cited the prospect of lower interest rates, improved economic growth, and more supportive business policies from the new administration in 2025. However, companies in the survey actually reduced employment for a fourth straight quarter. 

The semi-monthly update to the University of Michigan consumer sentiment survey reflected a softening from the mid-month preliminary reading but was slightly higher when compared to the final reading in October. According to the survey, though the overall result was little changed, beneath the surface, respondents’ political affiliations flipped markedly. Inflation expectations for the year-ahead were unchanged, at 2.6%, but long-run expectations troublingly increased from 3.0% last month to 3.2%. If this increase reflects price pressures elsewhere in the economy, it may make it more difficult for the Federal Reserve to continue to cut its federal funds rate. At its meeting on December 18, the Fed will present its updated economic projection.