MY TURN: Cross currents in a snowless winter
Mitchell
It is the season for contemplating the year ahead, and one embarks on this effort with trepidation after the chaos of 2025 — Liberation Day on April 2, the day after National Economists Day, vitriolic attacks on the Fed chairman, a massive surge in AI-related investment and OBBBA. The year 2025 saw GDP growth close to 2024 (final data is not out yet), but a dramatic slowing in job growth, 48,000 per month, down from 168,000 in 2024. About 77% of the annual job gain was in healthcare. Federal employment fell by 277,000 over the year. The supply side of the labor market was disrupted by deportation, fear and closed borders. Inflation was 2.7% at year end, down a little, but above the Fed’s target and outside Americans' comfort zone, judging by the angst in polls. The data is tainted by the shutdown, which interrupted the data-collecting process — no October unemployment rate or price data.
Entering 2026, there are things that suggest continued growth — investment incentives atop the AI investment saga, falling interest rates, continuation of and expansion of 2017’s tax cuts and three years of double-digit equity gains with the accompanying wealth effect. AI holds promise for productivity, helping to offset the aging labor force. (The oldest Boomers turn 80 this year.) However, the continued tariff volatility, supply chain interruptions, diminished labor force growth and Fed attacks work the other way. Increasing uncertainty is a drag on decision-making and performance. Should there by a stock market correction, the wealth effect could go into reverse — net worth of households and nonprofits rose by $6 trillion in Q3 of 2025. January has brought renewed attention to Greenland and, ever so briefly, the idea of tariffs against those who opposed U.S. imperial intentions (our erstwhile allies). This threatens to escalate tensions in the trade arena as well as unraveling the U.S.-Europe relationship. In addition, threatened 100% tariffs on Canada if they deal with China increases uncertainty and threatens the outlook. (Stock up on aluminum and lumber!)
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