On Sunday, Treasury Secretary Scott Bessent said that he’s predicting a fruitful holiday shopping season, putting the US in a strong economic position. “The economy has been better than we thought. We’ve had 4% GDP growth in a couple of quarters,” he announced on CBS. He believes that, despite the recent government shutdown, the US is looking at 3% real GDP growth for Q3.
The fact that there was 4% growth in a few quarters, however, was false. In Q1, the US economy shrank 0.6%, amid tariff concerns and general political instability, sparking concerns of an upcoming recession. After that, in Q2, it did manage to bounce back and come close to the 4% mark, at 3.8%.
Bessent’s belief in a 3% GDP expansion isn’t unfounded. The latest report from the Reserve Bank of Atlanta, released on 5 December, places Q3’s annual GDP increase at 3.5%. However, while this announcement is a way of getting a glimpse of upcoming data, it’s still far from final. The Bureau of Economic Analysis’ announcement is the official measure and is considered more authoritative and precise. The BEA will release data on 23 December.
While this news is tentatively positive for US residents and those who trade US-based assets, it may fail to represent the realistic state of the country’s economy, which is facing real struggles.
Consumer Sentiment Hurting
Consumer spending makes up nearly 70% of the US total GDP. As such, a large percentage of the GDP forecast comes down to how much the average person will spend. And according to recent data, the average person isn’t feeling too cheery about the economy.
In a recent University of Michigan consumer sentiment poll, the Consumer Sentiment Index increased to 53.3, up from a 51.0 reading in November. This exceeded the expectations of economists polled by Reuters, who expected 52.0. Consumer expectations regarding inflation, matching the sentiment, dropped to 4.1% from 4.5%.
By all accounts, these results show significantly increased optimism compared to the last month. However, it’s also important to remember that the previous report came during the government shutdown.
If we dial back and look at the previous year’s data, we can see a decrease of nearly 28% in consumer sentiment compared to last year. So, while the slight upward trajectory could be an indicator of improvements, it could also reflect relief from the dire situation the US narrowly avoided, and thus prove fragile.
Mass Layoffs
On 4 December, the consulting firm Challenger, Gray & Christmas released layoff estimates that suggest that the US job economy could get a lot less healthy.
With restructuring, positions being replaced by AI, and tariffs hurting certain businesses, 71,321 layoffs are planned for the November period. And while that number is less than October, it still puts total job cuts at 1.17 million for 2025.
Verizon’s announcement in November was a significant portion of this, as the company announced it would cut 13,000 workers. The tech sector is also a major contributor, with 12,377 positions lost. Tariffs accounted for 2,000 losses. In total, 32,000 jobs have been lost in the private sector for the month.
And while, once again, this does indicate a temporary relief from the previous month, year-on-year data is looking grim.
The total job loss is 57.4% higher than the identical 11-month period from the year before. In tech, 17% more layoffs have happened. Tariffs have been cited as the primary reason for the loss of 8,000 jobs, and AI for 54,694. Employment plans are also hurting, with 497,151 planned for the year, 35% less than the previous year.
And while temporary relief is there, November job losses have only twice in recent times exceeded 70,000 – in the 2008 financial crisis and the 2020 Covid pandemic.
Late September Inflation Stronger Than Expected
In September, the core personal consumption expenditures price index indicated a monthly rise of 0.2%, putting the annual rate at 2.8%. The monthly movement aligns with the Dow Jones estimate, but the annual rate was 0.1% lower. Headline PCE inched up slightly higher for the month, increasing 0.3% and placing the yearly rate at the same 2.8%.
The Fed uses the core PCE as its primary measurement when making inflation-related policies. The core PCE excludes high-volatility prices, like energy and food.
Goods prices, however, surged 0.5% on the month, and food followed closely at 0.4%. Service prices showed tamer movement at 0.2%. Energy prices exceeded them all, marking a 1.7% growth. As such, the prices most directly related to consumers all increased significantly above the overall inflation benchmark.
US Indices
While all measures point towards consumers struggling, the same concern isn’t shown in US markets. Despite weakness in the US economy, the S&P marked growth for four days in a row, closing at 6,870.40 on Friday, 0.19% higher than the day before. The Nasdaq Composite and Dow Jones Industrial Average show similar optimism, with 0.31% and 0.22% increases, respectively.
Expectations For Traders
The data in this article and the uptrending index markets seem to be a mismatch. However, traders who have been keeping up with US economic news are most likely already aware of the culprit behind this apparent contradiction.
US traders are eagerly awaiting rate cuts. Following the two cuts that have already been made in 2025, US traders are pricing in a third in December. The final decision is on Wednesday, but traders are fairly certain it will happen, with an 87% forecast in favour of the cut.
For those trading US-based assets, this, coupled with the general tendency of markets to move upwards in the holiday season, may result in a bearish market, at least temporarily.
However, for the USD in particular, a Fed rate may mean added strain, on top of an ongoing struggle in 2025. Forex traders should keep a close eye on majors, as the release is bound to create volatility as the cut collides a perceived strengthening economy against a weakening currency.
Finally, keep in mind that, while a cut usually injects energy into markets, it does not directly fix the underlying issue, especially regarding consumers. As such, even if Bessent’s predictions about GDP are accurate, if more pressure falls onto consumers, the backbone of the economy may start to crack, causing problems in the long term.
Khước từ trách nhiệm: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
