Economic sentiment posts its sharpest decline in over a year

Following a slight increase last period, the Penta-CivicScience Economic Sentiment Index (ESI) fell by 3.7 points to 35.7, propelled by a major decline in confidence in the U.S. economy. This represents the ESI’s largest decrease in over a year.

Four of the ESI’s five indicators decreased during this two-week period. Confidence in the overall U.S. economy decreased the most, falling 7.6 points to 40.6. This represents this indicator’s largest, single period decline since November 2020.

—Confidence in finding a new job decreased 5.0 points to 45.7.
—Confidence in personal finances decreased 5.0 points to 54.2. 
—Confidence in making a major purchase decreased 1.4 points to 26.0.
—Confidence in buying a new home increased 0.8 points to 22.1.

The advance estimate of fourth-quarter GDP released by the Commerce Department shows the U.S. economy grew by 2.3 percent from October to December 2024, driven by both consumer and government spending. This represents slower growth than in the third quarter of 2024, when the economy expanded by 3.1 percent, and it fell short of the 2.5 percent increase projected by economists polled by Dow Jones.

The January jobs report showed an increase of 143,000 jobs, falling short of economists’ projections of 167,000 and significantly lower than the upwardly revised 307,000 jobs added in December. Meanwhile, the unemployment rate edged down to 4.0 percent from 4.1 percent in the previous month. According to the Bureau of Labor Statistics, job growth was driven by gains in healthcare, retail trade, and social assistance. Government employment also saw gains, adding 32,000 jobs in January. These gains came before at least 65,000 federal workers accepted the Office of Personnel Management’s recent ‘Fork in the Road’ email offer to leave their positions while continuing to receive pay and benefits through late September. Economists are questioning the impact that these resignations will have on the national labor market. Additionally, the legal status of the deferred resignation program remains uncertain after a federal judge in Massachusetts indefinitely delayed the deadline for federal employees to resign.

President Donald Trump signed two proclamations imposing 25 percent tariffs on both steel and aluminum. This move came after his decision to temporarily delay tariffs on Canada and Mexico, though both countries are expected to be impacted by the metal tariffs, as both countries rank among the top three suppliers of steel to the U.S., with Canada also being the largest aluminum exporter to the country. Trump defended the tariffs as a way to boost domestic production, stating, “Our nation requires steel and aluminum to be made in America, not in foreign lands…” However, experts have cautioned that the tariffs could drive up costs for consumers. President Trump also recently instituted a 10 percent tariff on all goods from China, on top of existing tariffs already in place, which led China to institute retaliatory tariffs of 10 to 15 percent on select U.S. exports, including fossil fuels, farm machinery, and large-engine cars.

Federal Reserve Chair Jerome Powell appeared before the Senate Banking Committee on February 11 and discussed the Fed’s ongoing efforts to bring inflation under control. Regarding future rate cuts, Powell said, “we think our policy rate is in a good place, and we don’t see any reason to be in a hurry to reduce it further.” Powell’s remarks came one day ahead of new inflation data which will likely influence the Fed’s approach to future rate decisions. The January Consumer Price Index (CPI) report showed that consumer prices increased 0.5 percent in January and have risen 3.0 percent annually. This represents the CPI’s largest month-over-month increase since September 2023. This inflation report was hotly anticipated as many businesses often choose the beginning of the year as the time to raise their prices to account for rising input costs.

The ESI’s three-day moving average began this two-week stretch at a high of 39.7 on January 29. It then trended downward to 34.5 on February 1 and rose slightly before falling to a low of 33.4 on February 4. The three-day moving average then rose to 37.1 on February 7 and fell back down before rising to 36.5 on February 11 to close out the session.

The next release of the ESI will be on Wednesday, February 26, 2025.

Economic sentiment increases for the first time in 2025

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) increased by 0.2 points to 39.4, marking a minor increase in overall economic confidence.

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Four of the ESI’s five indicators increased during this two-week period. Confidence in the overall U.S. economy increased the most, rising 1.8 points to 48.2. 

—Confidence in making a major purchase increased 0.6 points to 27.4.

—Confidence in finding a new job increased 0.4 points to 40.7.

—Confidence in personal finances increased 0.2 points to 59.2. 

—Confidence in buying a new home decreased 2.4 points to 21.3.

The Federal Reserve left interest rates unchanged at between 4.25 and 4.5 percent, marking a pause after three consecutive rate cuts last year. In its statement, the Federal Open Markets Committee said, “The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid.” However, the statement also noted that, “Inflation remains somewhat elevated” above the Fed’s 2 percent target. 

Artificial intelligence (AI) stocks plummeted following the release of a new AI chatbot by Chinese startup, DeepSeek, which is said to use less data than current models and cost a fraction to design. Notably, Nvidia’s stock price dropped almost 17 percent, and major U.S. indices also faced losses. The Nasdaq Composite declined by 3.07 percent while the S&P 500 fell by 1.46 percent.

Data from the U.S. Bureau of Labor Statistics showed that grocery prices rose 1.8 percent in the one year period between December 2023 and December 2024. Notably, egg prices during this same period surged 36.8 percent, driven in part by the ongoing bird flu outbreak. These rising prices are putting an increased burden on Americans in the midst of decades-high mortgage rates and high credit card balances.

Despite these financial pressures, consumer spending has shown surprising resilience. The U.S. Census Bureau reported that retail sales rose modestly in December, increasing by 0.4 percent compared with November, signaling strong consumer spending through the holiday shopping season. This represented a 3.9 percent increase over the previous year and marked the fourth consecutive monthly increase in retail sales.

The International Monetary Fund (IMF) upgraded its projection of U.S. economic growth for 2025 by 0.5 percentage points, raising its estimate of real GDP growth from 2.2 percent to 2.7 percent. IMF chief economist Pierre-Olivier Gourinchas stated, “we have stronger potential output growth in the U.S. compared to prepandemic” but noted that this anticipated growth represents a “divergence” from the rest of the world. Gourinchas stated that the IMF is predicting “weaker potential growth in other areas, like the euro area or China.”

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The ESI’s three-day moving average began this two-week stretch at 40.8 on January 15. The next day, it increased slightly to 40.9, then trended downward to 38.2 on January 21. The three-day moving average then rose up to a high of 42.1 on January 23 before falling to a low of 35.5 on January 26. It then ticked up to 37.6 on January 27 before falling to 36.9 on January 28 to close out the session.

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The next release of the ESI will be on Wednesday, February 12, 2025.

Economic sentiment drops sharply to start 2025

Following a slight rise heading into the new year, the latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) decreased by 1.9 points to 39.2, the largest decline in over a year. This comes after a modest rise in the previous reading, where economic sentiment increased 0.3 points during the two-week period ending on New Year’s Eve.

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Four of the ESI’s five indicators decreased during this two-week period, offsetting all gains observed in the previous period. This period, confidence in making a major purchase decreased the most, falling 3.3 points to 26.8.

—Confidence in personal finances decreased 3.2 points during this biweekly period to 59.0.

—Confidence in buying a new home decreased 1.9 points during this biweekly period to 23.7.

—Confidence in finding a new job decreased 1.9 points during this biweekly period to 40.3.

—Confidence in the overall U.S. economy increased 1.1 points during this biweekly period to 46.4.

The Commerce Department’s third estimate of U.S. third quarter real GDP was revised upward, showing that the U.S. economy expanded at an annual pace of 3.1 percent. This marks the 10th consecutive quarter of positive real GDP growth.

The December Jobs Report showed that the economy added 256,000 jobs last month, much higher than the Dow Jones consensus forecast, demonstrating the ongoing strength of the American labor market. The unemployment rate fell to 4.1 percent from 4.2 percent last month. The U.S. Bureau of Labor Statistics reported that this represents an increase in employment across the healthcare, leisure and hospitality, and government sectors as well as a notable rise in retail employment before the holiday shopping season.

Despite a brief period of declining mortgage rates in late September following the first interest rate cut by the Federal Reserve in four years, 30-year mortgage rates remain elevated at 6.93 percent, the highest rate since early July 2024. Sam Khater, Freddie Mac’s Chief Economist, stated in a press release that “the continued strength of the economy has put upward pressure on mortgage rates, and along with high home prices, continues to impact housing affordability.”

The BLS released the December Consumer Price Index (CPI) report, which showed that consumer prices increased 0.4 percent in December and have risen 2.9 percent annually. This represents the CPI’s largest month-over-month increase since February and demonstrates that the Fed’s fight against inflation remains unfinished.

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The past four weeks have been marked by fluctuations in the ESI’s three-day moving average. The moving average began the last four weeks at 41.5 on December 18. It then oscillated between decreasing and increasing, peaking at 42.4 on December 28, before declining for five days to 38.7 on January 2. The three-day moving average then rebounded to 40.7 on January 5 before falling again to a low of 36.6 on January 13, and then ticked upward to 37.9 on January 14 to close out the session.

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The next release of the ESI will be on Wednesday, January 29, 2025.

Economic sentiment decreases slightly to close out 2024

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) decreased by 0.3 points to 40.8, marking a minor dip in overall economic confidence ahead of the new year.

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Three of the ESI’s five indicators decreased during this period. Confidence in the overall U.S. economy decreased the most, falling 3.6 points to 46.5. This marks the third period in a row this indicator has fallen by more than 3 points.

—Confidence in making a major purchase decreased 0.7 points to 29.5.
—Confidence in personal finances decreased 0.2 points to 59.1.
—Confidence in buying a new home increased 0.1 points to 24.8.
—Confidence in finding a new job increased 2.7 points to 44.0.

The Federal Reserve reduced interest rates by 25 basis points to between 4.25 and 4.5 percent, marking the third consecutive rate cut this year. Members of the Federal Open Markets Committee had previously expected four rate cuts in 2025 but are now projecting only 50 basis points of cuts next year. Additionally, Fed officials raised their forecasts for inflation next year to 2.5 percent, up from their previous estimate of 2.1 percent, signaling that price pressures remain stubbornly elevated above the Fed’s 2 percent inflation target. 

The Commerce Department reported that retail sales rose by 0.7 percent in November, up from October’s 0.5 percent increase, signaling resilient consumer spending as the holiday shopping season begins. Gains were driven largely by auto sales, which surged 2.6 percent, while online retailers saw a 1.8 percent boost. However, signs of caution emerged as sales dipped at grocery stores, restaurants, and clothing shops. The steady spending reflects an economy growing at a healthy pace despite higher interest rates, though it may prompt the Federal Reserve to slow its approach to rate cuts next year.

The U.S. Bureau of Labor Statistics released the November Consumer Price Index (CPI) report, which showed that consumer prices increased 0.3 percent in November and have risen 2.7 percent annually. This represents the CPI’s largest month-over-month increase since April 2023. The Bureau highlighted that nearly 40 percent of the increase can be attributed to rising shelter costs, which rose 0.3 percent in November. The Bureau also reported that food and energy prices increased month-over-month, rising 0.4 percent and 0.2 percent, respectively.

The November Jobs Report showed that the economy added 227,000 jobs last month, rebounding from October, where only 24,000 jobs were added after revisions. The unemployment rate ticked up to 4.2 percent from 4.1 percent last month. The Bureau reported that this represents an increase in employment across the healthcare, leisure and hospitality, government, and social assistance sectors and also noted that manufacturing jobs rebounded this month following the end of the Boeing strike.

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The ESI’s three-day moving average began this two-week stretch at 40.8 on December 4. It then oscillated between increasing and decreasing before rising up to a high of 42.3 on December 9. The three-day moving average then decreased, falling to a low of 39.0 on December 13, and then trended upward to 41.1 on December 17 to close out the session.

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Due to the New Year’s holiday, the next release of the ESI will be on Wednesday, January 15, 2025.

Economic sentiment decreases slightly following Thanksgiving

The latest biweekly reading of the Penta-CivicScience Economic Sentiment Index (ESI) decreased by 0.2 points to 41.1, marking a minor dip in overall economic confidence as the holiday shopping season begins.

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Three of the ESI’s five indicators decreased during this period. Confidence in the overall U.S. economy decreased the most, falling 3.4 points to 50.1. This marks the second period in a row this indicator has fallen by more than 3 points.

—Confidence in personal finances decreased 2.9 points to 59.3.
—Confidence in finding a new job decreased 1.0 points to 41.3. 
—Confidence in making a major purchase increased 3.2 points to 30.2.
—Confidence in buying a new home increased 3.2 points to 24.7.

The Commerce Department’s second estimate of U.S. third quarter GDP remained unrevised from the advance estimate released in early November, showing that the U.S. economy expanded at an annual pace of 2.8 percent. This marks the ninth consecutive quarter that GDP growth exceeded 2 percent.

Meanwhile, the Commerce Department released the October personal consumption expenditures (PCE) price index which showed that inflation excluding volatile food and energy prices increased by 0.3 percent from September to October and 2.8 percent year-over-year. This represents a minor acceleration from September, where core PCE increased 2.7 percent year-over-year. This data points to the stickiness of inflation and raises questions about whether the Federal Reserve will continue to cut rates in December as its preferred inflation metric remains stubbornly above their 2 percent target.

The National Association of Realtors (NAR) reported that home sales in October increased 3.4 percent from September, reflecting a short-term drop in mortgage rates. While NAR Chief Economist Lawrence Yun stated that, “the worst of the downturn in home sales could be over, with increasing inventory leading to more transactions,” he also affirmed that “we are not going to return to 3 percent, 4 percent, or 5 percent mortgage-rate conditions” and that “the new normal will be around 6 percent.” Economists at Wells Fargo are projecting that rates will average around 6.3 percent by the end of next year, and Fannie Mae is estimating an average of 6.4 percent in 2025.

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The ESI’s three-day moving average began this two-week stretch at 41.3 on November 20. It then fell slightly to 40.9 on November 23 before increasing back up to a high of 43.2 on November 26. The three-day moving average then fell back down to 40.9 on November 28, then rose to 42.6 on December 1 before decreasing to a low of 40.0 on December 3 to close out the session.

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The next release of the ESI will be on Wednesday, December 18, 2024.