US Economy: Weekly Commentary – January 12, 2026

US Market Review

Equities advanced led by small caps. Long bonds outperformed, while gold became the leading global reserve asset. The dollar strengthened, oil prices rose on supply risks, and gold and Bitcoin posted modest gains.

Treasury bond performance was mixed over the week, with longer-dated maturities clearly outperforming shorter tenors. Gold surpassed U.S. Treasuries to become the world’s largest foreign reserve asset for the first time since 1996, supported by strong price appreciation and sustained central bank purchases. Global gold holdings are now approaching USD 4 trillion, driven by de-dollarization concerns, heightened geopolitical risks, and gold’s safe-haven appeal following an almost 70% increase in 2025. In the U.S., President Trump ordered the government to purchase USD 200 billion in mortgage-backed securities in an effort to lower mortgage rates.

U.S. equity markets ended the week higher. Micro-cap and small-cap stocks rose 4.70% and 4.60%, respectively, significantly outperforming large-cap equities, which gained 1.60%. The “Magnificent Seven” advanced 1.56%. Sector performance was broadly positive, with utilities the sole underperformer, declining 1.55% over the week.

In foreign exchange markets, the U.S. dollar strengthened 0.72% against the euro, reaching a one-month high. WTI crude oil rose 2.53%, posting its largest daily gain since October amid heightened supply concerns driven by escalating protests in Iran’s oil-producing regions and renewed fears of disruption from the Russia–Ukraine conflict. Gains, however, may be limited by rising global inventories and persistent oversupply. Markets also tracked discussions in Washington on potential Venezuelan oil export agreements, which could impact long-term supply as U.S. companies plan significant investments to boost production. Gold advanced 4.06% over the week, while Bitcoin gained 1.02%.

US Market Views Synopsis

US job growth stalled. Unemployment fell to 4.4%. Manufacturing contracted while services expanded. Consumer sentiment rose slightly but remained low. Labour markets are subdued. Economic outlook remains cautious.

US labour market growth stalled in December, with modest full-time gains offset by part-time losses, leaving unemployment at 4.4% and wage growth steady. Nonfarm payrolls rose just 50,000, below expectations, with prior months revised down 76,000, signalling broadly subdued employment outside a few sectors like education, healthcare, government, and leisure. Over six months, average payroll growth has been minimal, implying net job losses once adjustments are made. Manufacturing continued to contract, with the ISM manufacturing PMI falling to 47.9 amid weak orders, inventory drawdowns, and persistent cost pressures, while services surged to 54.4, driven by strong activity, hiring, and orders. Consumer sentiment rose slightly for a second month, led by lower-income households, but remains roughly 25% below last year, with inflation expectations stable but above pre-pandemic norms. Overall, the economy shows divergent trends: manufacturing weakness persists, services drive steady growth, the labour market cools, and cautious consumer sentiment supports a gradual Federal Reserve approach in early 2026.

Labour Market

US job growth stalled in December, with full-time gains offset by part-time losses; unemployment dipped to 4.4%, wage growth steady, suggesting Fed action unlikely before March.

US labour market concerns are intensifying despite a modest decline in the unemployment rate, as overall job creation has largely stalled and is narrowly concentrated in a few sectors. December nonfarm payrolls rose by only 50,000, below expectations of 70,000, with downward revisions of 76,000 to the prior two months, underscoring Fed Chair Powell’s caution that payroll growth may be overstated and that employment could be contracting. Job composition shifted materially, with full-time employment increasing by 890,000 while part-time jobs declined by 740,000 and multiple-job holders fell by 444,000—a complete reversal from the prior month. Over the past six months, average payroll growth has been minimal, implying net job losses once measurement adjustments are considered. Gains in December were heavily concentrated in education, healthcare, government, and leisure and hospitality, while most other sectors—including technology, construction, manufacturing, business services, financial services, retail, and logistics—shed jobs or added minimally. Although the unemployment rate fell to 4.4% and wage growth remained steady at 0.3% MoM, the broader labour market momentum has cooled. With monetary policy still modestly restrictive, the data support the case for further gradual easing; however, a likely firm inflation reading next week suggests the Federal Reserve is unlikely to act before the March FOMC meeting.

We expect the labour market to remain subdued, with job growth concentrated in a few sectors and volatility between full- and part-time employment, reflecting continued cooling and supporting gradual Fed easing.

Business Activity

US manufacturing contracted further in December amid weak orders and high costs, while services surged with strong activity, hiring, and orders, highlighting divergent trends across the economy.

The US manufacturing sector closed 2025 on a weak note, with the ISM manufacturing PMI falling for a third consecutive month to 47.9 in December, the lowest reading since October 2024 and below the 48.3 consensus. The decline reflects sharper contractions in production and inventories, as firms drew down raw material stockpiles at the fastest rate since late 2024, relying on existing inventories to meet tepid demand. New orders shrank for a fourth month and export bookings remained weak, while supplier deliveries slowed and order backlogs continued to shrink. Price pressures remained elevated, with the ISM prices-paid index steady at 58.5, six points higher than at the end of 2024. Employment contracted for an eleventh consecutive month, albeit at a slower pace, underscoring ongoing caution in hiring. Respondents cited tariffs, rising input costs, seasonal factors, and sluggish consumer spending as persistent headwinds, though the easing of trade uncertainty and the passage of new federal legislation may provide a modest boost to capital expenditure in 2026.

By contrast, the US services sector ended 2025 on a strong footing, with the ISM services PMI surging to 54.4, surpassing all expectations and marking the highest reading since October 2024. Business activity climbed to 56.0, new orders jumped to 57.9, and the employment component rose to 52.0, its first expansion reading since May. While order backlogs fell to 42.6, the prices-paid index remained elevated at 64.3, indicating persistent inflationary pressures in the sector. The strong services data contrast with softer regional surveys and global PMIs, suggesting the Federal Reserve can maintain a patient approach on interest rates. Labour market indicators are consistent with a “low hire, low fire” environment, as job openings declined but layoffs remained subdued, and private payroll growth remained modest. Overall, the services sector continues to drive steady growth, even as manufacturing struggles under lingering trade tensions and cost pressures.

We expect manufacturing weakness to persist into early 2026, but robust services growth and steady hiring should keep overall economic momentum intact, supporting a cautiously optimistic outlook.

Consumer Sentiment

Consumer sentiment rose for a second month, led by lower-income households, yet remains 25% below last year. Inflation expectations held steady, while concerns over prices and labour persist.

Consumer sentiment inched higher for the second consecutive month, reaching its strongest level since September 2025, driven largely by gains among lower-income households even as sentiment among higher-income consumers declined. Despite these modest improvements, overall consumer confidence remains nearly 25% below its level from last January, with households primarily focused on everyday economic concerns such as elevated prices and a softening labour market. Although anxiety over tariffs appears to be gradually easing, consumers remain cautious about broader business conditions and employment prospects. Notably, over 90% of interviews for this survey were conducted before the capture of Nicolás Maduro in Venezuela. Year-ahead inflation expectations held steady at 4.2% in January—the lowest since January 2025, yet still above the 3.3% recorded that month—while long-term inflation expectations edged up slightly to 3.4% from December’s 3.2%, well above the 2.8–3.2% range observed in 2024 and the sub-2.8% levels seen in 2019 and 2020.

We don’t expect a significant rebound in consumer sentiment in the short term, due to ongoing high prices, softening labour markets, and cautious views on overall economic conditions.