ECONOMIC OVERVIEW

A strong Q3 gives way to a softer finish

Real Gross Domestic Product (GDP) growth decelerated sharply at the end of 2025. After surging 4.4% annualized in Q3, the advance Q4 estimate came in at just 1.4% as consumer spending moderated and net exports turned negative.

Full-year 2025 growth landed at 2.2%, down from 2.8% in 2024, as tariff uncertainty and elevated financing costs weighed on investment. The Federal Reserve cut rates by 75 basis points over three meetings, bringing the federal funds rate to 3.50-3.75% by year‑end. Chair Powell signaled a pause, and the December projections indicated only one additional cut in 2026. Improved financing conditions are expected to provide some support to the construction sector.

Source: Bureau of Economic Analysis

Labor market conditions softened more than initially reported. The February 2026 benchmark revision lowered seasonally adjusted total nonfarm payroll levels by 898,000 as of March 2025, revealing that the economy added just 181,000 jobs in 2025, far below the 584,000 initially estimated. The unemployment rate held at 4.3% in January 2026, showing little change from mid-2025 levels. Federal government employment fell by 327,000 positions from its October 2024 peak as ongoing workforce reductions took hold. In total, January 2026 brought a rebound of 130,000 payroll gains, led by health care, social assistance and construction.

The Consumer Price Index head fell from 3.0% year-on-year in September to 2.7% in December and further to 2.4% in January 2026. Core CPI reached 2.6% in December, the lowest reading since March 2021. The Fed’s preferred measure, core PCE, remained higher at 3.0% as of December 2025, still above the 2% target.

The Federal Reserve views current labor and inflation trends as broadly balanced but continued softening in job growth and a slowdown in overall activity could warrant more than one rate cut this year.

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