Vinny: “Does that freight train come through here at 5:00 A.M. every morning?”

Clerk: “No, sir, it’s very unusual.”

Vinny (the next day): “Yesterday you told me that freight train hardly ever comes through here at 5:00 A.M. in the morning.”

Clerk: “I know. She’s supposed to come through at ten after 4:00.”

Vincent LaGuardia Gambini (from 1992’s My Cousin Vinny) ain’t slept in five days. He was woken up by the constant rumbling of a train passing right outside his window. Pigs loudly squealing from a slaughterhouse became a substitute alarm clock. As if that wasn’t enough, the steam whistle blast calling lumber mill workers to their posts was an extreme case leading him deeper into auditory madness. To top it off, the unearthly call of a screech owl saw Vinny shoot off a few rounds into the night at what he thought was a tranquil cabin in the woods. Only after being sent to jail for contempt of court did Vinny get reprieve from the chaos of the new noises, finding peace while incarcerated and sleeping like a baby through a prison riot.

Monday’s U.S. economic calendar had us embracing chaos emanating from the New York Federal Reserve and the National Association of Home Builders (NAHB). Upon the release of November’s Empire manufacturing survey, we noted that excessive noise, a.k.a., volatility, in the Second District’s ISM-weighted gauge overlapped with a string of overestimation. The only certainty gleaned: the sum of its parts provided inaccurate guidance. In December, the ISM-weighted Empire fell to 50.0 from 55.7 in November. Given its recent track record, we don’t expect the ISM to break its sub-50 streak this month.

Despite its predictive shortcomings, New York factories are a lens into the interconnected global industrial supply chain; there are still valuable nuggets to prospect. December flashed hope from upstream producers to recoup lost profit margin. Future Prices Received rose 5.2 points to 46.5 (red line), a level solely on par with the post-COVID bulge and the months immediately preceding the credit event that catalyzed the Great Recession, i.e., Lehman’s failure.

Interestingly, this contradicted the report’s other price metrics. Future Prices Paid broke support, falling 7.1 points to 55.4 (blue line), the lowest since January. Even more pressure came off present costs, with Current prices paid dropping 11.4 points to 37.6 (yellow line). The 4.2-point decline in current prices received to 19.8 (green line) adds a third disinflationary reading. Notably, while the so-called current margin spread (i.e., received to paid) compressed to its lowest since January, at -17.8, this occurred not due to improved pricing power, but materials’ costs cooled.

A glance at two leading indicators corroborated disinflation. December’s Current New Orders shifted into neutral (0.0 from 15.9 prior), refusing to hit escape thanks to a pattern in the last 18 months’ ups and downs. At 4.90, Current Inventories running north of demand also re-inverted the New Orders-Inventories spread for the first time in three months, a ‘no confidence’ vote for near-term factory output prospects (aqua line). Moreover, persistently contracting Current Backlogs since June worsened to -14.9 in December, the weakest print in 23 months (fuchsia line). Weakening in this labor demand leader flags fragility in Current Employment (7.3) its Workweek counterpart (3.5).

The New York Fed wasn’t the only candidate to be noise-canceled. NAHB’s Home Builder Sentiment index has quadruple-dipped in the last few years. With blinders on, these oscillations are akin to investor positioning swinging from risk-on to risk-off in a range trade. Hindsight reveals a home building slump since the headline number first hit December 2022’s bottom. This December’s eight-month high of 39 is cold comfort as it intersects with the lead-in to the 1990-91 and 2007-09 recessions (purple line). Ditto for Future Sales (lime line) and Buyer Traffic (orange line), at 52 and 26, respectively.

Excerpts from the home builders’ report piled onto the disinflationary theme. NAHB excerpts were the tell: “Market conditions remain challenging with two-thirds of builders reporting they are offering incentives to move buyers off the fence…The use of sales incentives was 67% in December, the highest percentage in the post-Covid period.” Heightening promotional activity is happening alongside a higher cost and supply environment: “Meanwhile, builders are contending with rising material and labor prices, as tariffs are having serious repercussions on construction costs…Rising inventory also has increased competition for newly built homes.” Two words: Margin Squeeze.

As our colleagues at Zelman & Associates summed it up: “For the year, the NAHB’s sentiment index averaged a reading of 37, down from 45 in 2024 and representing the lowest level since 2012 (34).”

Peering into the jobs picture as we await today’s Bureau of Labor Statistics’ (BLS) coming back out party, macro analysts have no choice but to turn up the noisy volume of withheld income tax receipts. By no means is the series captured from the Daily Treasury Statement a useful guide for monthly nonfarm payrolls: its value comes from its year-over-year (YoY) trend. As volatile as it is, ongoing episodes above and below the longer run average of 4.5% YoY make for points of reference (lilac line). To wit, subpar withheld performance from late-2022 to early-2024 saw the trend in nonfarm payrolls downshift from 4.5% YoY to 1.5% YoY.

Since then, alternating above-and below-normal figures halved it further, to 0.8% in the 12 months ended September (teal line). With both November (0.8% YoY) and December’s preliminary number (3.1% YoY) running under the long-run average, a continued deceleration in the official statistics seems likely when the BLS catches us up to November this morning. Should the downshift be realized, the noise from tax receipts would ratify what countless other sources have long since communicated: slower job growth is at the epicenter of weakening U.S. fundamentals.

“When we’re all born, Saturn’s somewhere, and the Saturn cycle takes around 29 years. That’s when we’ve got to wake up and smell the coffee, because, if we’ve just been sort of, relying on our cleverness, or you know, just kind of floating along, Saturn comes along and hits you over the head, and says, ‘Wake up!’”

Pop star Ariana Grande references the “Saturn return” on her most recent album, eternal sunshine. Those who believe in astrology view the late 20s, when the planet Saturn goes back to where it was in the sky when a person was born, as a turbulent, transitional period in life. On the other side of the Saturn return, one has left youth behind once and for all and emerged a fully-formed adult. In the late 50s, a “second” Saturn return is said to occur, which marks a transition from adulthood into the maturity and wisdom of late middle-age. Finally, for those fortunate enough to have their third Saturn return in their mid-80s, the experience is characterized by profound reflection on one’s life and legacy.

You may or may not believe in the power of planetary alignments to dictate events in your life. Ditto on the ability of analysts to accurately forecast major economic releases. Regardless, Bloomberg compiles estimates into a “consensus” figure, against which the actuals are always compared. However, as releases become imminent and new information comes to light, an alternative “whisper” number will come into view.

With November’s delayed jobs report on tap for tomorrow morning, the whisper number of 15,000 is less than a third of the 50,000 consensus. Both are respective multi-year lows (red and blue lines). Going back to 2023, the -35,000 differential is the largest to the downside, matching this February, when the whisper correctly indicated that the 151,000 1^st NFP print would come in below the 160,000-consensus. Interestingly, since 2010, the whisper number has correctly revealed the direction of the 1^st NFP print vis-à-vis the consensus only about ~40% of the time (meaning, if the whisper was less than the consensus, the 1^st NFP print came in below consensus, or vice versa). Nevertheless, it’s clear that markets are preparing for the worst come 8:30AM ET on Tuesday.

While most attention is paid to the first print of NFPs, for us at QI they have about as much providence on the true jobs picture as, say, our daily horoscope or a fortune cookie message. It’s not until much later, multiple revisions in hand, that the true nature of job growth or destruction reveals itself. State-level nonfarm payrolls and JOLTS data that we’ve since received flag further risk of downward revisions in tomorrow’s refreshed numbers for August and September. The revised sum of states’ nonfarm payrolls for August now sits at -15,000, suggesting downside to the -4,000 national figure. Furthermore, the state-level figures featured NET downward revisions in a population-weighted 59% of states (red bar). As for September, the preliminary, surprise 119,000 NFP gain was north of the 103,000 Hires-Separations spread in the JOLTS data (light blue bar), as well as the paltry +9,000 sum-of-states’ NFPs (yellow bar). It would not surprise us to see much of September’s initial strength revised away.

Looking beyond tomorrow’s jobs report, Wednesday will give us an updated Business Employment Dynamics (BED) report for the first quarter of 2025. As a refresher, BED comes from the Quarterly Census of Employment and Wages (QCEW), from which annual benchmark revisions to nonfarm payrolls are generated. The report informs of gross job gains and losses in the private sector, and is also the underlying source for the BLS’s “birth/death model”. After the initial NFP print is revised twice into a third print, and then again via the annual benchmark revision, BED gives the clearest look through the rearview mirror into private sector payroll changes.

The bottom chart and table in today’s missive ran in the August 1^st Quill, released after the previous BED for Q4 2024 was released. There, we flagged that the difference between gross private job gains and losses was negative for two straight quarters in the second and third quarters of 2024 (-163,000 and -1,000), an occurrence that’s featured in every recent NBER-designated recession (see also: the first and second quarters of 2001, 2008, and 2020). Even when factoring in government payrolls, the combined total across these two quarters (-120,000 and 117,000, see rightmost column in above table) remained net negative. That being said, the fourth quarter BED data indicated a reversal back into positive territory (385,000, of which 287,000 was private).

At the time, we found that this return to growth was a temporary aberration. Estimating the post-BED results for 2025’s first quarter, we used the trend in the 4-quarter moving average of the BED private job gains-losses spread to back into a figure. Doing this suggested a net decline of -37,000 in private sector payrolls in the first quarter of this year, a return to net job destruction that outweighed the +33,000 gain in government payrolls over the same three-month span.

Our estimates indicated that cumulative payroll growth from 2024’s second quarter through the first three months of 2025 declined more than 80% from its originally reported 2.18 million to a post-BED figure of 378,000. The monthly run rate of just 32,000 is also well below the breakeven pace needed to keep the unemployment rate level. And yet, in spite of job growth clearly falling out of the proverbial “bed”, after last week’s FOMC the Federal Reserve is signaling an expectation for just one rate cut for the entirety of next year.

Come Wednesday morning, we’ll be able to replace our estimates with actuals to see the true extent of the deterioration for the four quarters ended the first quarter of 2025. If you’ll recall, February and March saw some of the highest monthly job cut tallies this year, according to MacroEdge and Challenger, Gray, & Christmas. Many of these were DOGE-related, but private job cuts nonetheless accounted for more than 100,000 of Challenger’s 172,017 cuts in February. We hope that the fresh BED numbers mark a Saturn return moment for the Fed, forcing them to “wake up!” to the troubling realities of the labor market.

Washburn, Langford and Doane easily could be mistaken for a law firm today. But in 1870, these three were central figures in a second expedition to explore areas that would become Yellowstone National Park. Surveyor-General Henry Washburn and Montana politician/businessman Nathaniel Langford were accompanied by military escort Lt. Gustavus Doane. The explorers traveled to Tower Fall and the eastern and southern shores of Yellowstone Lake. They climbed several peaks and descended into the Grand Canyon of the Yellowstone. But it was in their survey of the Lower, Midway and Upper geyser basins where they came upon a marvel of geological engineering. Little did they know the entire mechanism began miles beneath the surface, where rainwater and snowmelt formed an immense underground reservoir. The superheated water below instantly vaporized into a massive volume of steam, violently forcing the entire column of water up and out of a majestic, powerful jet. They named it ‘Old Faithful’ for its highly predictable eruption cycle.

The U.S. economic calendar has its own Old Faithful. If it’s a Thursday – and there isn’t a government shutdown – you can synchronize your watches to the regular 8:30 am release of weekly jobless claims. (Without it, Jonathan wouldn’t know what day of the week it is.) Another faithful via this key fundamental indicator is its usual and customary run of end-of-year, holiday-related volatility that renders it less insightful to the broader financial market community.

In the latest week available, initial jobless claims also shot northward, mimicking the superheated steam from America’s most famous geyser. The 44,000 seasonally adjusted (SA) increase to 236,000 (aqua line) was the largest week-over-week (WoW) advance in five years and followed a Thanksgiving-week dip that pushed the leading indicator to a richly valued 192,000, near historic lows. From a technical perspective, the bounce was expected. However, the figure still generated a surprise vis-à-vis the 220,000-consensus estimate, beating all but 1 of 40 economists Bloomberg surveyed. Such was the move, it rose sharply from close to the 0% Fibonacci line of the last four years, at 189,000, (red line) through the 61.8% retracement level of 235,400 (light green line).

So, was it a Thanksgiving aberration? This question posed in the first quad chart is answered in the second. To level the playing field, calendar years structured identically to 2025 were utilized – 1975, 1986, 1997, 2003 and 2014. Since the start of November, the raw, not seasonally adjusted (NSA) initial claims have gone through alternating ups and downs in the six weeks depicted through the middle of December. It’s as if we found our own ‘Old Faithful!’ – for direction, but not magnitude.

Focusing on the November 29 Thanksgiving week, the -19.0% WoW decline (red bar) wasn’t too far off 2014’s -17.6% (orange bar) or even 1986’s -14.5% (light blue bar). Granted, seasonally adjusting any weekly series is a tall task, and initial claims have always been volatile. But if the NSA WoW change isn’t that far off, should the holiday factor really get all the blame in reflex fashion?

The real question lies with the week ended December 6. The 58.0% WoW geyser was far above every prior increase: 1975’s 20.8%; 1986’s 31.9%; 1997’s 30.0%; 2003’s 35.9%; and 2014’s 32.2%. Since the initial claims data are “advance” and subject to revision the following week, the count could get adjusted lower. Even if it did, this next point could outweigh it.

As of this writing, Google Trends search interest for “file unemployment” is up marginally (~1% WoW) in the yet-to-be completed week ended December 13. Past seasonal patterns range from -5% to -15%. For the sake of gauging SA initial claims in the December payroll survey week, we framed the situation with these four scenarios:

• +1% WoW NSA gain translates to a worrisome 277,000,
• -5% WoW NSA fall yields a further jump to 261,000,
• -15% WoW NSA decline generates a neutral 233,000,
• -20% WoW NSA plunge partially reverses to 220,000.

While filing is trending according to big data, it’s only translated into a steadily expanding base of the insured unemployed. Smoothing “file unemployment” to a four-week average shows an up-channel remains in place. Preliminarily through the current week, this gauge edged higher to a 15.4% year-over-year (YoY) rate (lilac line). Alternatively, continuing claims ebbed to a 1.7% YoY pace. Despite being the slowest YoY comparison since January, continuing claims remained in an unbroken 45-week streak of annual gains. Google Trends outperformance suggests the streak won’t soon be broken.

As the Bureau of Labor Statistics continues to play catch-up with its reports after the government reopened, yesterday’s state-level employment and unemployment numbers allowed the hard data to put a stamp of approval on the loosening labor backdrop. Looking over the six-month period ended September, 30 of 51 states (including D.C.) flagged a rising path for the level of unemployment. The 59% share (orange line) rose off July’s interim low of 49% and was the highest since March’s 61%.

When combined with the share of states reporting falling nonfarm payrolls from March to September, the creep higher for both metrics is reminiscent of periods leading up to the 2001 and 2007-09 recessions. To be sure, state employment breadth showed just 10 states out of 51 (or 20%) with a contractionary six-month trend (purple line). While the numbers seem relatively low, economic expansion was usually designated by readings under 20%.

It’s worth noting that geyser-like spikes from employment breadth are a staple of recessions, something that has yet to be declared, though Federal Reserve Chair Jerome Powell all but bowed to that reality in his post-FOMC presser. That’s why next week’s Old Faithful jobless claims report could be pivotal for the labor discussion, should one of the more bearish scenarios described pan out.

On March 18, 1923, The New York Times ran a story entitled, “Climbing Mount Everest is Work for Supermen.” British mountaineer George Mallory, who manned the first two expeditions toward the summit in 1921 and 1922 was asked: Why do you want to climb Mount Everest? His short answer: “Because it’s there.” These words became the three most famous and recognizable in mountain climbing. But Mallory expounded: “Everest is the highest mountain in the world, and no man has reached its summit. Its existence is a challenge. The answer is instinctive, a part, I suppose, of man’s desire to conquer the universe.” Sadly, he was lost during the third expedition on Everest in 1924. The Brits would make five more attempts in 1933, 1935, 1936, 1938 and 1951 before the successful ascent in 1953 by Sir Edmund Hillary of New Zealand and Tenzing Norgay a Nepali-Indian Sherpa. Remarkably, Norgay saved Hillary’s life during the climb by quickly securing their rope after Hillary fell into a deep crevasse. Raise a glass for the Sherpa.

Due to their high-altitude existence and cultural background, Sherpas have a natural aptitude for climbing, allowing them to work as guides and porters for mountaineers, particularly on peaks like Mount Everest. The dismal science also relies on guides for higher altitudes. Tuesday’s JOLTS report provided a prime example.

Quits are the essence of ‘good’ unemployment — involuntary workers leaving one gig for a higher-paying one. Layoffs are at the heart of ‘bad’ unemployment, dislocating employees from firms and generating a negative income shock. The difference between the good Quits and the bad Layoffs acts as a cyclical force behind unemployment cycles. More quits relative to layoffs is synonymous with rising job security, while the opposite beckons heightened job insecurity. Other unemployment designations (i.e., reentrants and new entrants) tend to exhibit less cyclical sensitivity making them less relevant when judging labor cycles.

Both sides of the Quits-Layoffs spread are moving in an unfavorable direction. Through October, the former fell to a cycle low of 2.941 million, and the latter rose to 1.854 million, just 50,000 shy of the January 2023 cycle high. Quits-Layoffs doesn’t just depict the most important movements in the composition of unemployment, it also leads the path of the jobless rate. To capture its attributes, we lagged Quits-Layoffs from one month to six months and applied all into an unemployment model.

The value of the exercise wasn’t to find exact point estimates for the official unemployment rate; it was to create a cyclical guide. The current deviation populates November at 5.084% (red line), decidedly above September’s 4.440% rate (green line). The outcome suggests the underlying labor picture could be looser than viewed solely through the prism of official statistics. It also leans in the direction of higher unemployment risks and additional Federal Reserve easing after December.

The Quits-Layoffs spread also does a bang-up job in guiding “down the mountain” for the near-term path of wage inflation. Yesterday’s Employment Cost Index (ECI) yielded a mild easing in wages & salaries to a 3.548% year-over-year rate in 2025’s third quarter from the slight uptick to 3.605% in the prior interval (teal line). Over the last quarter century, a two-quarter Quits-Layoffs lag has been the best fit for foreshadowing wage pressures. Given the compression thus far into 2025’s fourth quarter, wage disinflation should extend at least through 2026’s second quarter (lilac line).

High frequency measures of sluggish labor demand up conviction on this theme. Lightcast’s weekly Job Postings through the end of November showed an uncharacteristically large drop-off during the Thanksgiving week (-30.5% below the January 2020 benchmark). All five industries (Manufacturing, Financial, Professional & Business Services, Education & Health Care and Leisure & Hospitality) fell sharply, as did all five designations by required education levels. Smoothing things over a four-week period creates a dynamic month-ized series.

On this basis, total Job Postings fell 4.7% (dark blue line), the first foray into negative territory in ten weeks. Because Education and Health Care postings remained positive, at 7.5% (yellow line), it implies that outside of recession-proof industries labor demand is relatively weaker. This theme has been echoed in evidence from small businesses and the broader private jobs picture published in QI’s prior research.

The Fed undertaking its third rate cut in as many meetings bolsters lower-rate optics. Mortgage rates have fallen in kind throughout 2025, and the Mortgage Bankers’ Association’s (MBA) purchase index moved to new highs for the year thus far in December (orange line), putting them on par with readings a few years ago. However, the MBA series measures the application count and is not revised to reflect if a mortgage is rejected.

Applying the mortgage rejection rate from the New York Fed’s Credit Access Survey creates a new series that brings the picture closer to the reality on the ground. The adjusted index (purple line) has fallen sharply from an interim top in September and does not portray the same confidence as the headline number. Moreover, the capitulation lower in home selling conditions in November and December (lime line) weighs on the perceived, improved momentum drawn by the purchase index.

The Fed’s hawkish cut where two dissents, Goolsbee and Schmid (Infamous dove Goolsbee was the new addition this time around), called for no change in rates does not provide unanimous support for the housing market to truly gain escape velocity from its ongoing slump. To wit, President Goolsbee’s stance was unusual especially since his Bank’s research included significant below-trend depictions for Current and Planned Hiring and severely compressed labor costs, according to November’s Chicago Fed Survey of Economic Conditions. Moreover, the Fed’s upgraded growth view, especially for 2026 and 2027 increases their confidence that unemployment will come down over the next two years to 4.4% and 4.2%, respectively, from 4.5% in 2025.

In the here and now, our Sherpas guiding for higher unemployment demonstrate that the Fed’s policy re-statement of “downside risks to employment” is warranted. Powell noting in the presser that “job creation may be negative” and a “systematic overcount” may overstate payrolls by 60,000 a month helps explain yesterday’s bull steepening. There’s probably more where that came from with labor weakening ongoing and January rate cut odds only at 22%.

On this day in 1932, the Australian government officially surrendered after a month-long battle against thousands of large flightless birds. That year, a drought had caused an unusually large emu migration, leading to massive crop damage in Western Australia. Farming in the region was dominated by World War I veterans, and while they were allowed to shoot the emus, their resources were limited. Defense Minister George Pearce believed that dispatching professional soldiers to help would demonstrate the government’s resolve. In November 1932, three members of the Royal Australian Artillery traveled to the district with two Lewis machine guns and 10,000 rounds of ammunition (plus a cinematographer, confident as they were). Their assignment was to cull around 20,000 of the” vermin,” but over a month’s time, fewer than 1,000 emus were killed. The group, led by Major Gwynydd Purves Wynne-Aubrey Meredith, discovered that one emu served as a lookout to warn the others, giving them time to escape. Unsuccessful as the operation was, Meredith would go on to publicly state that the emus could “face machine guns with the invulnerability of tanks.”

The Australian government’s failure in the Emu War eventually became the subject of national and international ridicule. Today’s Federal Reserve meeting is far from that description. As of this writing, the U.S. central bank is priced at a 90% probability to deliver a third 25 basis-point rate cut. The Fed does not have cagey five-foot flightless birds with a maximum speed of 31 mph in the crosshairs, just downside risks to its employment mandate that it should continue to address after December. A ‘dovish cut’ would be a prudent course of action.

There will, however, always be an “on the other hand.” In the case of Tuesday’s data, the National Federation of Independent Business (NFIB) highlighted that “inflation is a point of concern in the November data. The net percent of owners raising average selling prices rose 13 points from October to a net 34% [orange line], the highest reading since March 2023 and the largest monthly jump in the survey’s history. Price increases remain well above the monthly average of a net 13%, suggesting continued inflationary pressure.”

We’re certain that your inboxes contain commentary praising the NFIB’s current prices metric as a reliable guide for U.S. headline and/or core inflation. And we don’t debate its validity. But the small business inflation environment should never be observed in a vacuum. If demand is behind it, then why is the Fed nearly fully priced to cut today?

The small business climate has something to do with that. A net 13% of owners cited it was a “good time to expand” in November (light blue line). NFIB’s characterization is all you need for context: “Compared to readings during economic expansions, this is a relatively weak reading.”

After the July 4^th passage of the One Big Beautiful Bill Act, the good time to expand measure popped up to 16% that month. But the gain proved short-lived, never reattaining December 2024’s post-election optimism of 20%. For what it’s worth, the decline to November’s 13% is consistent with every economic downturn since 1990 (dashed light blue line). In fact, we haven’t seen this kind of divergence between these two NFIB figures since the Great Recession.

Staying on Main Street, downside employment risks are not risks anymore; they are – and have been – reality. According to two national payroll providers, the small business jobs picture has become progressively worse since the spring. ADP small business private payrolls have declined for four consecutive months and six out of the last seven; November’s -120,000 month-over-month contraction was exactly five times greater than the prior -24,000 six-month average (green bars).

In yesterday’s weekly update, ADP noted that “November [small business] job losses were broad-based, with every supersector shedding workers except Education and Health Care (which added 21,000 jobs) and Natural Resources (which added 2,000). Losses were led by small employers in Manufacturing and Professional & Business Services. Small businesses lost jobs in both the goods and services sides of the economy, and in both business-to-business and consumer-facing industries.” Strikingly, private core payrolls, excluding recession-proof Education and Health Care, fell an outsized -141,000. (We remind you at this juncture that large business layoffs tend to be attended by six to nine months of severance. When asked if a fired employee is still on the payroll by ADP, the answer is “yes” if severance is being paid.)

The Paychex Small Business Jobs index validates ADP’s take by gauging year-over-year (YoY) worker count; readings above/below 100 denote expansion/contraction. The November reading came in at 99.38 (purple line). This was the seventh straight contraction and overlapped ADP’s negative run. Echoing ADP, Education and Health Care was the outperformer (100.64 in November); Financial Activities (100.30) which was the only other industry indicating YoY gains.

Downside employment risks aren’t just a small business phenomenon. At -13,000, Tuesday’s double-month September/October JOLTS report revealed the Private Core Hires-Separations spread dipping back into negative territory. This followed a stretch from June to September that read like this: -141,000, -71,000, 8,000 and 36,000. Because Hires-Separations are a check against the official payroll figures, the last five months generated a -181,000 cumulative decline (fuchsia line). The corresponding gauge via the Bureau of Labor Statistics posted -90,000 in the five months ended September (dark blue line). Ergo, downward revisions are implied for the private core trend when it hits next Tuesday. More importantly, JOLTS is inconsistent with economic expansion. This point reinforces our prior stance that a January rate cut probability (currently 27%) is underpriced.

A longer cyclical view incorporates the U.S. Leading and Coincident indices — the last four years’ extreme compression in the Leading/Coincident ratio corresponds solely to the Great Recession (red line). As leaders have fallen, coincident measures have kept rising. But since the latter are subject to revision – especially the component of nonfarm payrolls – the line drawn in the last quad chart is subject to change. Other sources clearly reveal cyclical vulnerability for the labor market. Should Fed officials wish to avoid similar embarrassment to 1932’s Emu War, they should keep firing off rate cuts.

Rock stars are easy to name. Musical influencers, not so much. Tapping into the Rock & Roll Hall of Fame (HoF), the Musical Influence Award has been handed out since its first class of inductees in 1986. In 2024, John Mayall received said recognition as the “Godfather of British Blues.” The HoF website described Mayall as a “purveyor of amped-up Chicago-style blues in the early 1960s.” His groundbreaking band, the Bluesbreakers, became a who’s who of young musicians who would define British rock in the late 1960s. He influenced The Rolling Stones, Cream, The Animals, The Yardbirds and Led Zeppelin. The revolving door of the Bluesbreakers launched successful careers for Eric Clapton, Mick Taylor (Rolling Stones), Peter Green and Mick Fleetwood (Fleetwood Mac) and Jack Bruce (Cream). Known for his 12-string Rickenbacker and its jangly tone, it distinguished Mayall from other traditional blues guitarists. If you have a blues harmonica prodigy under your roof, have a listen to Mayall’s “Room to Move” from The Turning Point album. It won’t disappoint.

From room to move to room to improve…on the U.S. inflation expectations front. The New York Fed’s Survey of Consumer Expectations (SCE) revealed median one-year inflation expectations came in at a steady 3.20% in November compared to 3.24% in October (teal line). In other words, there wasn’t much movement to speak of as “households’ inflation expectations remained unchanged at the short-, medium-, and longer-term horizons.” The three-year and five-year ahead medians stayed stuck at 3.00% and ticked down a hair from 3.00% to 2.98%, respectively.

Dissecting the distribution of one-year inflation expectations showed a persistent upward bias. The largest share of consumers, 44.4%, expected inflation above 4% over the next year followed by 25.0% in the 2-4% range, 11.4% in the 0-2% cohort and 19.2% that foresaw declines in the less than 0% bucket. Since the 2013 inception, respective long-run averages for these four slices were 41.5%, 24.2%, 17.3% and 17.1%. Interestingly, that makes the 0-2% group the one that has diverged the most from its longer-term trend.

To be sure, it’s as if this quadrant existed in two separate planes before (between 20% and 25%) and after the pandemic (between 10% and 15%, lime line). The takeaway is that there’s room for improvement. Moreover, since the last available consumer price index (CPI) yielded a 3.0% year-over-year rate (red line), it would take a disinflationary move to 2% (and below) to shift the distribution back toward the performance in the five years leading up to COVID.

One definitive disinflationary artifact was unearthed from the SCE’s household financial situation. Danielle set the table for this metric with her QI Pro chat post denoting that “the percentage of respondents saying their current financial situation was worse than a year ago rose to 39%, the highest in two years.” This was complemented by 17.6% of those surveyed indicating the current situation was better. The future financial situation compounded things as 31.4% saw a worsening vis-à-vis 26.4% calling for an improvement in the year ahead. November’s net -5.0% reading (orange line) marked a six-month low and the seventh inversion in the last nine months, hammering home the disinflationary theme.

The upside-down outlook does not bode well for indebted households. Debt delinquency expectations, defined as the mean probability of not being able to make a minimum debt payment, rose to a seven-month high of 13.7% in November (inverted purple line). When the future financial situation worsened in 2022 and 2023, it laid the groundwork for the last time debt delinquency expectations were this high in 2024.

Farther back, the worries about paying on time during the 2016 episode were short-lived, not to mention, job loss fears were contained; the SCE’s higher unemployment expectations gauge was less than 40% (not illustrated). During the weak run for expected finances from March to November, higher unemployment expectations (HUE) were north of 40% in six of those nine months. Even the end of the government shutdown in November did little to rally HUE as it edged down to 42.1% from 42.5% in October. The outlier nature of 2025 should be emphasized. For most of the history of the HUE, it traveled between the 30% and 40% range 83% of the time (124 out of 150 months).

The SCE’s job finding expectations series adds to this narrative. But in the spirit of innovation, QI converted this series, which measures the mean probability of finding a job in the next three months if that job were lost today, by flipping our inner Dr. Jekyll to Mr. Hyde. The Job ‘Not’ Finding metric is its own approximation of HUE, but from the perspective of employment expectations. In six of the last eight months ended November, Job ‘Not’ Finding ran above the 50% mark (dark blue line).

Combined with HUE, it shows how acute labor concerns are for households. Does this combination mean that capital is being favored over labor? The spread between Sentix’s investor expectations (at +2.3 in December) and the University of Michigan’s consumer expectations for the U.S. economy (at -42.0) is telling. The divergent optimism compared to the dire pessimism (at +44.3, fuchsia line) suggests profits are the focal point to the detriment of warm bodies; the visual association between the two series reinforces our Spidey senses on capital winning over labor.

Future hits to consumer purchasing power also came through in higher essentials’ inflation expectations. In November, food price expectations advanced to a two-year high of 5.9% (green line), rent expectations rose to a decidedly elevated, five-month high of 8.3% (light blue line) and medical care cost expectations increased to 10.1% (lavender line) the highest level since January 2014.

For the last example, the timing of this couldn’t be more appropriate. U.S. corporations’ open enrollment periods for next year’s benefit plans most commonly happen in October and November. Add this as a third exhibit of evidence for a jump in 2026 health care costs that we tabled in the most recent installment of the Intelligence Briefing. Households viewing higher nondiscretionary pricing against a smaller cushion of personal savings (yellow bars) suggest they could be singing the blues in 2026 as it will be tougher sledding this time around to cover all costs.

In 1923, four brothers—Harry, Albert, Sam, and Jack—set their sights on making it big in Hollywood. After founding Warner Bros. Pictures, Inc., they quickly found their first big “star”: a German Shepherd named “Rin Tin Tin.” The dog starred in silent pictures for the studio, became a sensation, and helped keep Warner Bros. afloat in its infancy. Then, in 1927, Warner Bros. revolutionized the business by introducing sound with the first feature-length “talkie,” The Jazz Singer. While the four brothers were all Hollywood pioneers, the youngest, Jack, was the most ruthless businessman of the bunch. In 1929, having no need for silent film stars anymore, he fired the adorable Rin Tin Tin. Decades later, in 1956, he went behind his brothers’ backs during a sale of the enterprise, buying it back from them in secret and subsequently installing himself as president. The news gave Jack’s brother Harry (who had been president before the sale) a heart attack. When Harry passed, his widow remarked that, “Harry didn’t die, Jack killed him.”

Lovers of the theatre-going experience we are at QI (though we’d appreciate if AMC cut down on the half-hour of ads, just the Nicole Kidman “we come to this place for magic” spot will do!), the most troubling news that crossed the wires for us on Friday was of streaming giant Netflix’s plans to acquire Warner Bros. for more than $80 billion. By comparison, the major economic releases of the day, the September PCE report and December University of Michigan data, were more tamely received by markets.

The Federal Reserve’s preferred inflation metric, core PCE, fell one-tenth to 2.83% YoY in September, coming in lighter than the consensus and clearing the path for another 25-basis-point cut at this week’s FOMC meeting, which is priced in with 86.2% probability as of this writing (pink line). Be that as it may, core PCE remains stubbornly north of the Fed’s 2% target, and consumers continue reiterating to the University of Michigan (UMich) that their pocketbooks are stretched thin. (Exhibit A: The goods/services with the biggest increases in consumer spending in September were all non-discretionary: gasoline/energy goods, utilities, and healthcare).

UMich’s Current Finances with respect to Income gauge did log an 8-point improvement in December’s data, but the net -6 print marked a fifth straight month in the red and ninth in the last 10 months (lavender line). Furthermore, current levels remain well below the +6 long-run average. Looking back to the Great Financial Crisis (GFC), this gauge did not turn negative until mid-2008. Similarly, Probability of Real Income Gains for next year dipped 3.3 points to 38.5%, its lowest since May and on par with levels seen in the latter stages of the GFC (lime green line). The one bright spot for consumers remains bullishness on their portfolios. The probability of Stock Market Gains in 2026 currently sits at a resolute 58.2%, higher than the 54% long-run average (yellow line). In fact, the 19.7-point spread between real income and stock market expectations marks a record divergence.

Without a paycheck coming in every two weeks, it’s a lot harder to grow your portfolio. In that vein, job loss fears remained acute as ever in UMich’s data. We’ve already flagged the 64,000-decline in ADP core payrolls in November, as well as the 1.17 million YTD job cut announcements logged by Challenger marking the worst year since 2009. Thus, it’s no surprise Higher Unemployment Expectations, at 63%, remained above the 50% threshold that accompanies recession for an eighth straight month (gold line). As labor market anxiety keeps frying nerves, we reiterate our position that Consumer Discretionary is subject to further downside. The XLY ETF, which represents the sector, shows a 6.7% YoY increase thus far in December, down from north of 20% earlier this year and the 14% YoY performance of the broader S&P 500 (blue line).

Meanwhile, the most discretionary of discretionary spending, hotels and restaurants, has faltered. The average of the aptly named BEDZ and EATZ ETFs turned negative in October and is currently down 3.2% YoY (red line). A recent CoStar report noted that U.S. hotel revenue per available room (RevPAR) declined by -0.3% in the two weeks ended November 29. As noted by Isaac Collazo, Senior Director of Analytics at STR, “Low ADR gains, which remain well below inflation, are still a concern as the pressure on hotel operating margins will continue.” The decline in international visitors to the U.S., which we highlighted in the most recent Quill, poses another hotel industry headwind. As for restaurant spending, the YTD performance of fast-casual “slop bowl” chains tells the story perfectly: CAVA (-54%), Chipotle (-43%), and Sweetgreen (-79%).

Our bottom two charts lay bare the Fed’s overly tight policy stance through the interest rate-sensitive sectors of durable goods and housing. In September, real durable goods purchases dipped marginally from $2.14 to $2.13 trillion SAAR (teal line). Current levels are now 2.6% off December 2024’s record high of $2.19 trillion. Extended declines in UMich Buying Conditions for both Autos and Large Household Durables suggest there’s more room for durables spending to fall. From their March 2024 peak of 85, Auto Buying Conditions have halved to December’s 42 (light blue line), while Household Durables have seen a greater than 40% drop from December 2024’s 108 to 63 (fuchsia line). Looking back to the 2007-09 crisis, similar declines in buying conditions presaged a 16% decline in real durables spending from a local high of $1 trillion in October 2007 to $840.3 billion in April 2009.

On the housing front, we’re beginning to see capitulation in UMich Selling Conditions after an extended period in the 100-120 range (purple line). July marked the first break below the 100-threshold, and December’s 83 marks a 17-point collapse in two months to levels last seen in mid-2006. Buying Conditions have begun to come off their lows as well, similar to the 2001 and 2007-09 corrections (olive green line). Until a leveling-off occurs, Pending Home Sales, which ticked up 1.9% MoM in October according to NAR, are likely to remain subdued (orange line). Looking past this week’s Fed meeting, the 24.8% probability of a January rate cut is far too low, in light of the lingering impacts of the Fed’s Too High for Too Long policy error, which represents a Jack Warner-esque betrayal of their stated mission to make policy for the public good.

With temperatures plunging in the Lower 48, our minds are longing for warmer days conducive to the proverbial road trip. Five come to mind. Historic Route 66 from Illinois to California, known as the “Mother Road,” offers a deep dive into classic Americana, passing through eight states and featuring quirky roadside attractions and vintage motels. California’s Pacific Coast Highway has breathtaking views of the Pacific Ocean, rugged cliffs and charming coastal towns, including the picturesque stretch through Big Sur (Danielle’s favorite). Blue Ridge Parkway from Virginia to North Carolina winds through the Appalachian Mountains; “America’s Favorite Drive” connects Shenandoah National Park and Great Smoky Mountains National Park. The Great River Road from Minnesota to Louisiana passes through ten states, following the entire 3,000-mile course of the Mississippi River. And if you love the great outdoors, U.S. Route 89 from Arizona to Montana takes you within a short drive of ten national parks, including the Grand Canyon, Zion, Bryce Canyon, Yellowstone, and Glacier National Park. Teddy Roosevelt himself would have loved to ride shotgun on “America’s Most Scenic Road Trip.”

If life affords it, make all five excursions. In the meantime, we know today’s missive is a small consolation. But on this Employment Friday…without an employment report, the five stops on our road trip around the U.S. labor market will have to suffice as an imperfect substitute.

Initial jobless claims hit ‘priced-to-perfection.’ No doubt, the better-than-expected 191,000 figure took place during the Thanksgiving holiday week (teal line). However, this number was so low that it was in the top 1% of all weeks since claims’ 1967 inception – that’s rich. While it doesn’t get much better than this, it also can’t get much better than this — initial claims are technically and fundamentally overvalued and at risk of correcting. Google Trends “file unemployment” search interest in the week after Thanksgiving tells you as much (yellow line).

And there’s more to come. Our preliminary November tally of WARN notices indicated a fall back into the mid-20,000s from a higher October number in the high-40,000s. Western standouts California and Washington, which drove these bottom-up layoff announcements in September and October, cooled in November to a combined number near 4,100. This said, two other large states, Florida and Texas, took the reins, pushing the total up by about 6,700; over the last 20 years, readings under 6,000 from the Sunshine State and Lone Star State have generally been associated with economic expansion. On balance, the three-month trend for total WARN notices remained above 100,000 in November (lilac line), a material divergence from the 75,000-median since 2006 (dashed lilac line). WARNs’ elevation asks the age-old question for the Federal Reserve’s rate-cut destinations (plural, for emphasis): “Are we there yet?” The answer is a resounding “No.”

Another alternative check is the Penta-Civic Economic Sentiment Index. This biweekly report’s New Job Index asks respondents for their best crystal-balling on employment expectations: “Over the next six months, do you think it will become easier or more difficult to find a new job?” As 2025 has unfolded, consumers have become increasingly despondent about job prospects. From the index’s high point of 44.0 in the week ended December 17, 2024, the forward-looking metric has guided lower. Nearly one year on, it’s ground down to 24.4 in the week ended November 18 (red line). Put this into context with the drop in initial claims. Better yet, put the New Job Index up against the U.S. two-year yield (dark blue line) and it’s been a mirror image. Ten-year yields fell in kind (green line), but the compression at the short-end is extraordinary and uncanny at the same time, especially since it happened alongside a lesser-followed labor source.

Yesterday being ‘Alternate Employment Thursday,’ Revelio Labs’ nonfarm employment release took us on a short detour as claims hit the newswires. The -9,000 November month-over-month (MoM) decline was the second in as many months after October’s initial print (-9,100) was revised lower (to -15,500). Moreover, Revelio’s freshest update indicated a run of job losses in five of the seven months since May, implying that April was a cyclical peak. Recall, ADP reported four declines in the six months ended November. 

Digging deeper, Revelio revealed widespread contractions in 11 of 15 major industries. Not to mention, private core employment excluding Education and Health Care compressed by -45,000, echoing the picture painted from ADP’s -64,000 private core decline.Unfortunately, we must wait another interminable 11 days to see if the official Bureau of Labor Statistics’ report catches up to the deteriorating cyclical narrative. Until then, Revelio’s smoother three-month moving average dancing around zero since June (fuchsia line) favors a dovish cut by the Fed next week.

Revelio’s job engine trouble was not lost on Challenger, Gray & Christmas’s hiring plans. Two takeaways:

• First, the outplacement firm “did not find any new seasonal hiring plans in November,” adding to the cautious consumer theme escalating daily. This Thursday, Bloomberg headline adds to the fray: “Kroger Cuts Guidance as Shoppers Get Choosy About Spending.”
• Second, overall hiring plans (not just end-of-year seasonal holiday ones) came in at 9,078. This labor demand sign has not been this fundamentally bad since November 2007, at the onset of the Great Recession.

Challenger also wasn’t shy about putting coal in the Bulls’ stocking. The pandemic year aside, year-to-date job cut announcements of 1,170,821 were only behind 2001’s 1,956,876 (recession), 2002’s 1,373,906 (jobless recovery) and 2009’s 1,242,936 (recession). A stratification shows the bulk of Challenger job cuts this year are neither structural (i.e., AI at 5% or Tariffs at 1%) nor related to government actions, while 61% are fundamental and hinged to themes around economic conditions/demand, cost cutting and credit issues that led to closings or bankruptcies (light green bars). Give the Fed the car keys. Policymakers are duty-bound to address what ails the U.S. economy.

“In many ways, the work of a critic is easy. We risk very little, yet enjoy a position over those who offer up their work and their selves to our judgment. We thrive on negative criticism, which is fun to write and to read. But the bitter truth we critics must face is that, in the grand scheme of things, the average piece of junk is probably more meaningful than our criticism designating it so. But there are times when a critic truly risks something, and that is in the discovery and defense of the new. The world is often unkind to new talent, new creations. The new needs friends. Last night, I experienced something new, an extra-ordinary meal from a singularly unexpected source. To say that both the meal and its maker have challenged my preconceptions about fine cooking is a gross understatement. They have rocked me to my core…Not everyone can become a great artist, but a great artist can come from anywhere. It is difficult to imagine more humble origins than those of the genius now cooking at Gusteau’s, who is, in this critic’s opinion, nothing less than the finest chef in France.”

This excerpt from Anton Ego’s food review was the turning point for Remy in Pixar’s 2007 animated feature Ratatouille. You too would be rocked to your core if one of the best meals you ever ate was cooked by a rat. ADP’s monthly employment report isn’t served up that way, but it does have a private core jobs measure that’s doing something as rare as a gastronomic rodent preparing you your Mom’s favorite childhood dish.

ADP’s November private payrolls figure disappointed market expectations, falling 32,000 versus the 10,000-consensus estimate. October’s 5,000 upward revision to 47,000 did little to lessen the sting. Since June, the top-line number has registered an outright month-over-month (MoM) decline in four of the six months ending November. Notably, these months overlap three discrete quarterly corporate earnings periods, an indication of employers’ broader cost-cutting efforts.

Core private payrolls, excluding recession-proof Education and Health Care, were decidedly weaker last month, dropping 64,000, the largest MoM decline in two years and the third in the last four months. ADP admitted that “hiring has been choppy of late as employers weather cautious consumers and an uncertain macroeconomic environment.” Core job losses in August (-21,000), September (-61,000) and November were interrupted by October’s uptick (21,000). The pandemic aside, the cumulative -125,000 net decline from August to November was the worst stretch since 2019, a.k.a., the recession that wasn’t. ADP’s ‘choppiness’ does not apply to the core. On balance, four-month trends for the headline (-4,000, fuchsia line) and core (-31,300, teal line) are both declining as they would in recession.

The Institute for Supply Management’s (ISM) services purchasing managers index added conviction to the weakening labor narrative. In theory, the bounce in Backlogs to 49.1 (yellow line) supports Employment, which printed at 48.9 (red line), but neither are expanding, perpetuating cautiousness. If headlines were the sole mechanism to glean fundamentals, (they aren’t) the ISM hitting a nine-month high of 52.6 would have justified Bloomberg’s red-hot headlines (light blue line).

Three points merit emphasis:

1. The 52.6 services PMI remained below the long-run average of 54.7.
2. The 52.6-level was a floor in prior economic expansions since the series’ 1997 inception.
3. The 3.3-point pop in Supplier Deliveries accounted for more than the entire headline gain.

On that last bullet, ISM approached longer delivery times as if they were a one-off event and not driven by fundamental strength. This isn’t unusual and can happen with supply disruptions. The highest Supplier Deliveries since October 2024 “was likely due to air traffic disruptions from the government shutdown and customs impacts related to changing tariffs.” Specific comments from respondents added convincing color: “Tariffs — items being stopped at borders; We are being told that the government shutdown has led to slower customs processing at the borders.”

The (woo-hoo!) nine-month headline high should be pitted against supply and demand: At 52.9, New Orders is running below Inventories, at 53.4. This extended the disinflation already on display via the sister ISM manufacturing report. To that end, both New Orders-Inventories spreads for manufacturing, at -1.5 (lilac line) and services, at -0.5 (dark blue line), were negative in tandem in November. Like negative ADP trends, this is also a rare turn. Dual demand-supply inversions have occurred 15 times in overlapping history since 1997; four of those took place in 2025 – April, June, July and November.

Speaking of imbalances, Cox Automotive’s fourth-quarter Dealer Sentiment Index (CADSI) revealed an alternative take. Franchised dealers, which are directly affiliated with manufacturers like Ford and Toyota, and are consistently more upbeat than independent dealers, revealed emerging pessimism for the demand outlook for only the fourth time since the CADSI was launched in 2017. Expectations for the vehicle market three months forward fell to 49 in 2025’s fourth quarter (purple line), which contrasted with new vehicle inventories rising to 59 in the same interval (lime line).

A look back over the post-pandemic period is warranted because swings in supply had (operative word) a greater influence on auto sales in 2021 and 2022 vis-à-vis the years that followed when supply disruptions normalized. In the here and now, the shift to pessimistic sales expectations suggests that 2025’s fourth quarter-to-date average 15.5 million selling rate (orange line) could have further to fall. Recall, this level persisted in an unusually steady fashion in 2023 and 2024 before pre-tariff purchasing pulled ahead demand in 2024’s fourth quarter and 2025’s first quarter.

Danielle’s Wednesday post on the QI Pro chat channeled her best Anton Ego: “HIGHLY unusual for Cox to sound downbeat. It has a job to do, which is cheerlead the sector come what may! As Deputy Chief Economist Mark Strand noted, ‘Dealers are signaling caution as 2025 ends. Persistent economic uncertainty and fading consumer confidence are weighing on sentiment. Compared to the rest of the year, the current market feels like it’s running out of gas.’” This puts the current quarter and the first three months of 2026 consumer spending forecasts in the crosshairs for downgrades.

Being thrown into Long Island Sound and told to “SWIM!” is not a methodology I’d recommend. I would know as that is how my father, Vincent Anthony DiMartino, introduced me to water. I’ve feared the ocean ever since, but I will never not smile looking back at the after-water thrill of a jaunt to Jimmies of Savin Rock in West Haven, Connecticut, a close neighbor to East Haven, where Dad grew up. According to the National Restaurant Association, one in three restaurants doesn’t survive the first year. Jimmies lasted for 100 before announcing that it would serve its last meal this Sunday, on Pearl Harbor Day, the day my grandfather survived in the bay that fateful morning, and the birthday of my twins, who turn 18 this Sunday. Neither Dad nor I was alive in 1925, when Moxie opened its doors and became an overnight sensation, serving its famous split hot dogs. The transition to Jimmies a decade on is now history. From the 1950s to the 1970s, customers from all over New England enjoyed Jimmies and the attractions of the Savin Rock Amusement Park. The restaurant outlasted the park into my lifetime and the many good memories that followed. On Saturday, in a Facebook posting, the owners announced, “Words can’t fully express how grateful we are for your loyalty, your laughter, your stories, and the memories you’ve made here with us over the decades. To every family that made us part of their weekends, celebrations, and everyday moments, thank you for making Jimmies more than just a restaurant.”

Two hundred eighty-four miles to the southwest, in Columbia, Maryland, the National Association of Credit Management’s (NACM) Credit Managers’ Index (CMI) channeled related news. The CMI noted particularly tough times for restaurants and hospitality: “Casual dining has been hit hard. We are seeing more customers who are not paying and who are avoiding collection efforts…We are concentrating on collection efforts over the next 45 days, as this is historically a strong season for the restaurant and hospitality industries. Interestingly, we also see some of the larger (national and regional chains) supplementing cash flow with proceeds from gift card sales through the warehouse stores like Costco and Sam’s Club as these are positioned as holiday gifts.’’

You’d agree it’s curious timing regarding NACM’s news as Bloomberg ran this story yesterday: “Mom-and-Pop Business Bankruptcies Hit a Record as Debts Rise.” According to Epiq Bankruptcy Analytics, Subchapter V (five) cases are rising faster than traditional Chapter 11 bankruptcies. The former are considered cheaper and faster for small firms to file and get relief, while larger businesses use the latter to restructure their debts. Year-to-date through November, Epiq reports Subchapter Vs were up more than 8%, compared to Chapter 11s up about 1% relative to last year.

NACM quantifies financial stress with many metrics, but Dollar Amount Beyond Terms, which approximates delinquencies, is a key performance indicator. The divergence between the manufacturing and services sectors could not be more glaring. The manufacturing CMI for delinquencies indicated noticeable optimism in 2025’s fourth quarter — the 56.9 average (orange line) was one of the highest on record, and November’s 60.2 (orange marker) stood nearly 10 points above the long-run average of 50.7, indicating performance improved throughout the three-month interval.

The service side, however, convulsed. The fourth quarter-to-date reading of 49.1 (light blue line) extended the sub-50 string to 15 straight quarters, while deterioration into November’s 48.2 (light blue marker) accelerated. One possible explanation for the factory floor/services divergence is that tariff-induced inflation may be benefitting upstream firms that have pushed costs downstream, cutting into margins in distribution channels and other service industries. This would leave the labor-intensive service sector more at risk for financial distress.

We venture to say that these micro developments are lost on investors. One look at NACM’s sales illustrates that credit managers are not observing macroeconomic stress. Why should market participants worry? Weighting both manufacturing and services CMIs by GDP shares and entering this gauge into a one factor model to project U.S. growth yields moderate results for both 2025’s third quarter at 2.4% YoY and fourth quarter at 2.1% YoY (green line) vis-à-vis the official second quarter GDP growth rate of 2.1% YoY (yellow bars).

Of course, as we’re learning in real time, GDP never tells the whole story. As NACM bottom-lined it: “While the index suggests economic expansion continues, credit managers are seeing customers increasingly unable to pay, avoiding collection efforts, and experiencing financial distress.” The first read of December consumer sentiment via RealClearMarkets(RCM)/TIPP noted persistent pessimism despite a sequential gain. The 47.9 headline Economic Optimism Index increased four points over November’s 43.9 measure (fuchsia line), but this kept the index below the neutral 50-level for the fourth straight month. Per RCM/TIPP, that kept, “the nation in what we classify as the pessimistic zone.”

RCM/TIPP guides the University of Michigan’s varsity leading indicator Consumer Expectations. The December uptick agrees with the direction of the 53.1 consensus estimate relative to November’s 51.0 figure (purple line). Nevertheless, the anticipated gain could be the result of a negative factor being subtracted to get a positive result. As RCM/TIPP explained: “The ending of the government shutdown is having a positive impact on the national psyche,” but “over-cautious monetary policy is paralyzing weaker sectors of the economy, such as housing, and dampening public confidence.”

Investors who’ve seen their brokerage accounts and 401(k)s swell with the S&P 500 (green bars) could care less about the Federal Reserve’s policy stance. RCM/TIPP’s Personal Financial Outlook for investors has climbed for years and clocked in at an optimistic 63.4 reading (dark blue line). December marked the 14th consecutive month north of 60.

Financial buoyancy for asset holders contrasts with ongoing negativity for the non-investor Personal Financial Outlook. December’s index slid in at 49.4, the third sub-50 reading in the last four months. After a brief bout of optimism surrounding 2024’s election, this cohort’s renewed pessimism reinforces the ‘K’-shaped consumer sector prospects. It also emphasizes the importance of financial buoyancy as a key support for the bulls’ “consumer resilience” narrative. Were the bears to overtake the bulls, however, it would surprise investors and forecasters alike. Under that scenario, one of Jimmies’ split hot dogs would be perfect comfort food.