Hello, my friends!
In what surely is a surprise to no one, it was President Trump’s rather controversial appearance at the annual World Economic Forum in Davos, Switzerland that proved to be the most notable bit of economic…or economic-related, at least…news to emerge this week.
Although much of this year’s gathering was devoted to the future of artificial intelligence (AI) on the global stage, Trump’s special address on Wednesday was focused largely on geopolitics. Among the president’s most prominent talking points included crowing about the U.S.’s perceived importance in ensuring global geopolitical and economic security as well as – relatedly – his bid to acquire Greenland.
“I think there were two Davoses,” said former Democratic Congresswoman Jane Harman. “One of them was very senior industrial leaders talking about AI. … The second was foreign policy, or geopolitics, and that was dominated by one person.”
President Trump’s speech was loaded with the usual hip shots, including swipes at various U.S. and world leaders, but by the time he left Switzerland, the global stage looked largely as it did when he arrived 24 hours earlier. No harm, no foul, as the saying goes.
To the extent there were any notable developments during his appearance in Davos, the president backed down from earlier threats to impose tariffs on nations opposed to U.S. acquisition of Greenland and also reassured attendees that he would not use force to obtain the Danish territory…revised positions that inspired confidence in financial markets and push major indexes back toward record levels. On his Truth Social platform, Trump implied that his acquiescence on Greenland was a result of reaching the “framework of a future deal” on Arctic security with Nato Secretary General Mark Rutte, but details on that agreement were not forthcoming.
Highly Regarded Inflation Metric Indicates Price Pressures Intensified in November
As for the week’s most notable data release, the Commerce Department reported on Thursday that the November personal consumption expenditures price index (PCE)…known to be the Fed’s preferred inflation measure…increased at a monthly rate of 0.2% and at a year-over-year pace of 2.8%.
Core PCE, which excludes more volatile food and energy prices, also rose in November at monthly and annual rates of 0.2% and 2.8%, respectively.
Along with the data for November, the government’s report included the PCE figures for the prior month, which had been delayed by the government shutdown. Those numbers showed the October PCE index – both headline and core – rose 0.2% on the month and 2.7% year over year.
Notably, annual core PCE has remained stuck between 2.5% and 3.0% for about the last two years. And for its part, annual headline PCE has steadily accelerated since slowing to 2.2% last April. Both trends highlight the profound “stickiness” of price pressures as official inflation rates struggle to return to the Federal Reserve’s 2% price target.
They also highlight the uncertainty hovering over monetary policy right now. Although the labor market unquestionably has cooled some over the last several months, consumer spending has remained exceptionally resilient. Now with inflation continuing to dig in its heels near 3%, it’s difficult to know when we’ll see another rate cut. As things stand, traders overwhelmingly say it’s unlikely the central bank will cut interest rates again before June.
Key Metric Suggests U.S. Business Growth May Be Slowing
Also this week, S&P Global reported on Friday that its Flash U.S. Composite Purchasing Managers’ Index (PMI) ticked up slightly in January, rising to 52.8 from December’s 52.7. Index measures above 50 imply expansion of the economy.
Although a net improvement, the January number is a bit underwhelming considering that the reading for December represented an eight-month low for the index.
“Flash” PMIs are advance estimates of the final numbers that come out at the end of each month and are calculated using roughly 85% to 90% of the survey responses.
Unsurprisingly, there also was little-to-no change in the broader index’s principal component measures. Flash U.S. Manufacturing PMI rose 0.1 percentage point to 51.9, while the Flash U.S. Services PMI needle didn’t budge from December, again landing at 52.5.
President Trump’s aggressive tariff policies were again cited as a principal source of the ongoing challenges to the overall business environment, with higher rates of input cost and selling price inflation directly attributed to the duties.
In a statement, Chris Williamson, chief business economist at S&P Global Market Intelligence, said, “The flash PMI brought news of sustained economic growth at the start of the year, but there are further signs that the rate of expansion has cooled over the turn of the new year compared to the hotter pace indicated back in the fall.”
Williamson added that “the survey is signaling annualized GDP growth of 1.5% for both December and January, and a worryingly subdued rate of new business growth across both manufacturing and services adds further to signs that first quarter growth could disappoint.”
Pending Home Sales Sank More than 9% in December
Finally, the National Association of Realtors announced on Wednesday that pending home sales tumbled 9.3% month over month in December, a stark reminder that the housing market remains fraught with challenges.
“The housing sector is not out of the woods yet,” said Lawrence Yun, chief economist for the Realtors. “After several months of encouraging signs in pending contracts and closed sales, the December new contract figures have dampened the short-term outlook.”
Sales were down on an annual basis, as well, dropping 3% from December 2024.
Along with monthly sales, inventory also was down 9%. Just 1.18 million homes were on the market last month, matching the lowest level of inventory of 2025. Yun suggests that the relative lack of choices in December may have played a hand in the sales decline.
“Consumers prefer seeing abundant inventory before making the major decision of purchasing a home,” Yun said. “So, the decline in pending home sales could be a result of dampened consumer enthusiasm about buying a home when there are so few options listed for sale.”
Still, a drop in inventory is just one of the obstacles currently facing homebuyers. Mortgage rates remain roughly double where they were four years ago, home prices are about 50% higher from where they were five years ago, and recent measures of consumer sentiment have revealed little confidence in the near-term strength of the economy.
That’s all for now; have a wonderful weekend!
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