Every January, millions of people set ambitious New Year’s resolutions — hitting the gym, saving more money, or finally tackling that long-overdue project. Yet, sticking to resolutions is often the hardest part. The same can be said for the economy, where early-year optimism is often tested by real-world conditions. As CFIs look ahead to 2025, January’s economic data offers a first glimpse at whether markets, employment, and banking trends are on track — or if adjustments are needed to stay resilient in the months ahead.January often brings new momentum, but this year, the economy sent mixed signals. Some indicators pointed to strength, while others reinforced lingering uncertainty over interest rates, trade policies, and business confidence. On the bright side, consumer spending remained resilient, businesses continued share repurchases, and housing activity showed modest growth. But tariff concerns, soft bank lending, and labor market shifts raise questions about what’s next.Labor Market Holds Steady, But Job Growth SlowsJanuary’s nonfarm payrolls report showed 143K new jobs, below market expectations of 169K. The unemployment rate edged down to 4.0%, and wages rose 4.1% YoY, providing continued support for consumer spending. However, the number of hours worked declined slightly, hinting at a potential cooling in labor demand.Banking Industry Trends To WatchWith Q4 bank earnings largely in, several trends are shaping the outlook for H1’25:
- Deposit costs are expected to continue to decline, providing relief for net interest margins.
- Higher labor and technology expenses will continue to be headwinds, especially as businesses try to control for rising insurance, energy, and general CapEx costs.
- Delinquency rates will remain low, though credit risk requires monitoring.
- M&A interest is rising, as banks look for strategic growth opportunities.
- Loan demand was soft in January, but expectations for improvement remained intact.
Markets React to Economic SignalsEquities gained in January, with the S&P 500 up 2.7%, driven by strong corporate earnings, general business activity, share repurchases, and a strong job market (i.e. driven by 401k investment). However, investor enthusiasm was tempered by ongoing tariff negotiations and volatility in the tech sector.The 10Y Treasury yield closed the month at 4.58%, reflecting a balance between declining inflation pressures and new uncertainties around trade and monetary policy.Housing: Holding Firm Despite Rate PressuresThe housing market continues to demonstrate resilience:
- New housing starts rose to 1.499MM (SAAR), up from 1.294MM in November.
- Existing home sales increased 2.2% MoM, with prices rising 6% YoY.
- Pending home sales declined 5.5% MoM, as affordability remains a hurdle.
Despite mortgage rate fluctuations, construction activity remains steady, supporting broader economic stability.What’s Next for Rates?At its January meeting, the Fed held rates steady at 4.25% - 4.50%, with Chairman Powell signaling that the central bank isn’t in a hurry to cut rates.Fed officials remain focused on achieving a 2% inflation target, but due to duration lag and outside economic pressure, market watchers don’t expect a rate cut until mid-year. Moreover, if inflation does come back, the prospect of rate hikes greatly increases, which could create an economic drag.Looking AheadJanuary delivered a mix of resilience and caution, setting the stage for what could be a pivotal first quarter. With job growth moderating, trade policy in focus, and inflation gradually cooling (especially outside of the US), CFIs will need to keep a close eye on shifting dynamics.February’s data — particularly the PCE and job report — will be key indicators in understanding where rates are heading and to a lesser extent where general business spending/investing activity stands.
