Economic Pulse: December 2025
Executive Summary
December brings a year of contradictions to an end. (Feels like I've said that a few times before now...) The US economy reported a strong Q3 GDP of +4.3%, but manufacturing contracted for ten months in a row. The US labor market quietly slowed with an average of just 49,000 jobs per month in 2025. (Weakest since 2003!) The Fed delivered three rate cuts, but it's hard to find a clear consent to whether or not the easing cycle may be over.
In a "New Normal" fashion, equity markets shrugged and finished the year at all-time highs. (However, mainly driven by AI hype and private credit funding, which shows very strong signs of overheating, to be covered in a different post. JPM and Goldman doing their thing ...)
Strong GDP, Weak Everything Else
The US economy looks strong in the headlines, but the details show cracks everywhere. The Q3 GDP estimate has finally been released after the government shutdown break (that in itself = !?!?) at a strong annualised +4.3%.
But the ISM Manufacturing PMI sank to 47.9, which is the lowest reading of 2025 and the 10th consecutive month of contraction. Employment within manufacturing contracted for an additional month, now counting 11.
With services PMI holding up at 54.4, the narrative is clear: the US "real economy" is running on software and services while physical production continues to shrink drastically. The software (AI) hyper growth will get a dedicated post, but would be my main concern. If there is weakness beginning to show in the funding structure, it will shine a brutal light on the data that has for now been swept under the rug.
December payrolls came in at just +50,000, below consensus and we saw a heavy revision of the October data to 173,000, which confirmed the shutdown doing real damage. Federal government employment has fallen 9.2% from January, The full year 2025 averaging only 49k jobs/month (vs. 168k in 2024).
Powell noted rates are now "within a broad range of neutral." My interpretation: don't expect much help from here.
Markets: A Flat Finish
The S&P 500 ended December essentially flat (−0.05%) The full year 2025: S&P +16.4%, Nasdaq +20.4%, Dow +13.0%. The forward P/E at 21.5x is stretched above the 5-year average of 20x.
Global Snapshot
Germany just barely managed to come out of two consecutive years of recession with it's GDP growing just 0.2%. (To compare: China hit exactly 5.0% for 2025, Q4 slowed a bit to 4.5%.) The technicality of "beating recession" is academic given the geopolitical uncertainty in Europe. The Russian invasion of Ukraine as well as a newly sparked escalation risk in the Middle East, triggered by the bombing of Iran this summer, pose strong threats to energy price stability and therefore inflation.
What does it mean?
Our Sector Navigator continues to show a large momentum gap between Tech/Communication/Utilities and the rest of the sectors.
With the Fed signalling a prolonged pause, the Momentum Chaser's next rebalance could be interesting as we will see AI-driven leaders either continuing to pull away, or broader econ data like the labor market catching up with sentiment.
Data Sources:
BEA. GDP Q3 2025 Initial Estimate (December 2025)
BLS. Consumer Price Index (December 2025, released January 2026)
BLS. Employment Situation (December 2025, released January 2026)
Federal Reserve. FOMC Statement and Dot Plot (December 10, 2025)
ISM. Manufacturing & Services PMI (December 2025)
S&P Global / Yahoo Finance. Market Performance (Full Year 2025)