The upcoming week is filled with crucial economic data releases that will provide insight into the state of the U.S. economy as it transitions into 2025. A mix of labor market reports and key Fed communications will shift expectations about growth and Fed policy, resulting in large swings in the interest rates that govern consumer borrowing costs for credit cards, auto loans and mortgages.
The main event is the December jobs report, where employment gains are expected to have slowed. December’s labor market data is likely to show:
A steady unemployment rate around 4.2%. While some unemployed workers were able to find work, others recently became unemployed. This is consistent with leading indicators like the rising 4-week average of initial jobless claims combined with a slight easing of the number of continued claims.Steady wage growth, holding near 0.4% month-over-month, as both labor supply and demand softened in tandem.
Meanwhile, the Fed’s December FOMC meeting minutes, set to be released midweek, will provide deeper insights into policymakers’ thinking. Despite a higher terminal rate suggested in the Fed’s dot plot, there are signs of slowing economic momentum:
Core inflation, as measured by the PCE index, is decelerating faster than expected.Growth projections for Q4 GDP have been revised downward, with the Atlanta Fed GDPNow model estimating 2.4% growth (down from 3.3% in late November) and Goldman Sachs now forecasting 2.3% growth in Q4.
In other key reports:
ISM Services Index: Following a slight improvement in ISM Manufacturing for December, the ISM Services reading is expected to strengthen modestly compared to November, reflecting resilience in the services sector despite broader economic headwinds.November Job Openings (JOLTS): Consensus expectations for 7.7 million openings may be overly optimistic. Labor demand likely softened in November.
As inflation continues to moderate and labor market conditions gradually loosen, this week’s data will shape traders’ expectations for 2025. While the Fed remains committed to its 2% inflation target, slower GDP growth and tighter financial conditions could spark debate among dovish FOMC members about the timeline for resuming rate cuts. For now, market participants anticipate a pause in the Fed’s rate-cutting cycle until at least June.
