Recent economic data suggests there are some positive trends emerging, particularly on Main Street. Americans’ disposable income is increasing, which in turn is boosting retail sales and home purchases, though challenges remain.
Data from the Bureau of Labor Statistics indicates that, when accounting for inflation, average weekly earnings rose by 1.42% between January and December 2025.
Meanwhile, according to the Census Bureau, retail spending saw a 3.3% increase in November compared to the same month last year and a modest 0.6% rise from the previous month, bouncing back from a 0.1% drop in October.
Interestingly, these figures were slightly better than economists anticipated. A poll by Reuters had predicted a 0.4% increase for November, consistent with earlier forecasts.
The recent decline in interest rates seems to have played a role in the housing market as well. Existing home sales jumped by 5.1% in December, attributed to reduced mortgage rates, as reported by the National Association of Realtors (NAR).
The average rate for a 30-year fixed mortgage fell to 6.19% in December, down from 6.24% in November and significantly lower than the 6.72% from the previous year.
NAR Chief Economist Lawrence Yun noted that while 2025 was a tough year for homebuyers—with soaring home prices and low sales—the market conditions began improving in the last quarter, driven by lower mortgage rates and slower price growth.
However, Yun also pointed out that inventory levels remain tight, as fewer sellers are willing to move. Homeowners seem to be taking longer to decide to list their properties. Typically, more homes tend to become available starting in February.
On another note, inflation appears to be stabilizing, although it still remains above the Federal Reserve’s target of 2%. December’s Consumer Price Index (CPI) report showed a monthly increase of 0.3% and a year-on-year rise of 2.7%.
When excluding volatile categories like food and energy, core CPI showed a 0.2% increase in December, up 2.6% compared to last year.
The U.S. economy added 50,000 jobs in December, leading to a decline in the unemployment rate, reflecting some of the ongoing shifts in the labor market.
Despite these numbers, inflation control remains a complex challenge for the Federal Reserve. With inflation being significantly above their long-term target, policymakers face the dilemma of stabilizing prices while trying to maximize employment amidst a somewhat weakening labor market.
The Fed has reduced its benchmark federal funds rate by 25 basis points through its last three meetings, which has indirectly helped lower mortgage rates that are largely affected by the bond market.
Looking ahead, markets are anticipating that the Fed will maintain its current rate when officials meet at the end of January. The CME’s FedWatch tool indicates there’s a 95% likelihood that the federal funds rate will stay in the current target range of 3.5% to 3.75% after that meeting.
