December 2024 reveals an economy at a crossroads, marked by slight improvements in manufacturing activity yet constrained by entrenched challenges across key economic indicators. The Enki Recession Index (ERI) holds steady at 0.614, underscoring a precarious balance between resilience and recessionary pressures.
Labor Market: Mixed Signals Beneath Stability
The unemployment rate dipped to 4.1%, reflecting an incremental stabilization in labor conditions. Nonfarm payrolls rose by 256,000, driven by robust gains in health care and government employment. However, manufacturing employment contracted for the seventh consecutive month, with the ISM® Employment Index falling to 45.3%. This persistent decline in goods-producing industries highlights broader structural weaknesses that overshadow headline job growth.
Wage growth, while steady, remains insufficient to counteract inflationary pressures, eroding real purchasing power and dampening consumer sentiment. The uneven distribution of job gains—focused on sectors such as healthcare and social assistance—contrasts with stagnation in manufacturing and leisure, revealing a fragmented labor recovery.
Manufacturing PMI®: Contracting, But Stabilizing
The ISM Manufacturing PMI® rose to 49.3%, up from November’s 48.4%, signaling a slower rate of contraction. Key subindexes showed mixed results: new orders expanded further, reaching 52.5%, and production returned to growth at 50.3%. However, employment contraction and shrinking backlogs remain significant headwinds, reflecting sustained fragility in manufacturing output.
Price pressures increased, with the Prices Index climbing to 52.5%, reversing prior declines. Notably, the sector’s dependence on stable demand faces risks from rising costs and prolonged supply chain adjustments. Despite the uptick in activity, the sector’s recovery remains tenuous, underscored by the absence of growth among the six largest manufacturing industries.
Yield Curve: Persistent Flattening
The yield curve remained flat at 0.17, reflecting persistent uncertainty about long-term economic prospects. While no longer inverted, this prolonged flatness indicates muted investor confidence in a robust recovery. Elevated borrowing costs, stemming from the Federal Reserve’s tight monetary policy, continue to suppress investment activity and reinforce economic stagnation.
Consumer and Business Outlook: Headwinds Prevail
Consumer spending remains constrained by elevated costs of essentials and declining housing affordability, as high mortgage rates weigh heavily on household budgets. Business investment shows limited momentum, with manufacturers reporting slower delivery times and cautious inventory management. The New Export Orders Index stabilized at 50%, but sustained improvements in global demand remain uncertain.
Conclusion: A Fragile Recovery
December’s economic indicators point to a fragile and uneven recovery, with modest improvements in some areas offset by persistent weaknesses elsewhere. Manufacturing’s slow stabilization is tempered by ongoing contraction in employment and demand-side pressures, while the flat yield curve reflects a cautious long-term outlook.
As 2025 begins, policymakers face the formidable task of balancing inflation control with fostering sustainable growth. With labor market resilience masking underlying vulnerabilities and manufacturing yet to achieve consistent expansion, the economy remains vulnerable to external shocks. The Enki Recession Index underscores the urgency for proactive measures to address systemic challenges and restore broad-based economic momentum.
Comments