As of January 22, 2025, the U.S. economy is showing signs of improvement, with significant gains in various economic indicators. The Leading Indicator has risen sharply to 79 from 58 in October, while the Coincident Indicator has increased to 75 from 58. Additionally, the Lagging Indicator rebounded to 50 from 25, suggesting a more robust economic environment. This positive trend is further supported by the December 2024 jobs report, which revealed an increase of 256,000 nonfarm payrolls, and small-business sentiment reaching a six-year high of 105.1. [3908ec9f]
Despite these encouraging signs, the economic landscape remains precarious due to potential trade tensions. President Trump has threatened to impose 25% tariffs on imports from Canada and Mexico, along with a proposed 10% tariff on Chinese imports starting February 1, 2025. These tariffs could pose risks to economic growth, potentially offsetting the gains made in other areas. [3908ec9f]
Moreover, the Core Consumer Price Index (CPI) report for December indicates ongoing disinflation, which may provide some relief from inflationary pressures. However, the significant gain in the 1-to-10 year U.S. Treasury spread, now at 1402.6%, suggests that investors are adjusting their expectations in response to these economic developments. [3908ec9f]
In the broader context of financial conditions, the RSM US Financial Conditions Index, as of January 16, 2025, indicates supportive growth conditions, although recent market volatility has led to a decline in major stock indices. The Federal Reserve's inflation-adjusted policy rate remains near its highest level since 2007, complicating monetary policy decisions amid high real borrowing costs. [25b8e57c]
The interplay between improving economic indicators and the looming threat of tariffs will be crucial in shaping the U.S. economic outlook. While the tightening of financial conditions has raised concerns about credit availability and lending volumes, the recent positive trends in employment and business sentiment may provide a buffer against potential economic disruptions. [3908ec9f]