Economic Resilience Shines Through Despite Tariff Concerns
As the year comes to a close, the US economy is showing signs of strength, with new orders for key manufactured capital goods surging in November. This uptick is largely driven by strong demand for machinery, indicating that businesses are confident in their investment plans. Additionally, new home sales have rebounded after being impacted by hurricanes, further underscoring the economy’s resilience.
Business Spending Plans on the Rise
Non-defense capital goods orders, excluding aircraft, rebounded 0.7% in November, exceeding economists’ forecasts. This closely watched proxy for business spending plans suggests that companies are gearing up for increased investment in the coming year. The continued growth in AI and new factory construction is expected to provide a sustained tailwind for business equipment spending.
New Home Sales Jump, But Mortgage Rates Pose a Challenge
New home sales jumped 5.9% to a seasonally adjusted annual rate of 664,000 units in November, marking a significant rebound. However, rising mortgage rates, coupled with the 10-year Treasury yield, may pose a challenge to the housing market in the coming year.
Consumer Confidence Takes a Hit
While consumers remain upbeat about the labor market, concerns over the potential impact of tariffs on the economy have led to a decline in consumer confidence. The Conference Board’s consumer confidence index plunged 8.1 points to 104.7 in December, erasing all gains made since the presidential election.
Labor Market Views Remain Strong
Despite concerns over tariffs, consumers remain optimistic about the labor market, which is the main driver of the economy through consumer spending. The labor market differential, a measure derived from respondents’ views on job availability, increased to a seven-month high of 22.2, suggesting that the unemployment rate may not rise further in December.
Mixed Market Reaction
Stocks on Wall Street were mixed, while the dollar gained versus a basket of currencies. U.S. Treasury yields rose, reflecting the economy’s continued resilience despite concerns over tariffs and other policy changes.
Sector-Specific Trends
Orders for machinery, electrical equipment, and primary metals all saw increases, while orders for computers and electronic products, as well as fabricated metal products, declined. The transportation equipment sector was also impacted, with a 2.9% decline in orders, largely due to a 7.0% drop in commercial aircraft orders.
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