The key events for the w/c 12 January 2026: US CPI, PPI, retail sales, and Fed speeches
Last week’s data continued to reflect the core tension in the US economy: a “low-dynamism” labor market persisting alongside resilient top-line economic activity. While the fall in the unemployment rate in Dec reversed the notable increase in Nov, the data still suggests a labor market stuck in a low-hiring/low-firing gear and, for now, keeping labor market risks elevated for the Fed. Amid these vulnerabilities, measures of activity through Q4 have so far remained resilient, albeit with pockets of weakness persisting in housing and manufacturing.
The Labor Market: A State of Low Dynamism
Importantly, the low firing environment remained intact in Dec. The unemployment rate declined to 4.4%, fully reversing the concerning spike to 4.6% in Nov. At the same time, the employment-to-population ratio increased back up to 59.7% (rebounding from the YTD low of 59.6%). This stability was also echoed in a similar fall in the unemployment rate within the core working age group (25-54yrs), where the unemployment rate fell back to 3.65% while the employment-to-population ratio returned to a YTD high of 80.7%. Secondary data also supported the low-firing theme. Layoffs in the JOLTS report fell back down at the end of Nov, initial jobless claims remain low while tracking seasonal shifts, and private-sector job cut announcements also eased at the end of the year.
At the same time, the low hiring reality remained entrenched. US non-farm payroll growth slowed to 50k in Dec, compounded by net revisions of -75k for the prior two months. While some of these revisions could be tied to non-cyclical declines in government payrolls, the broader trend was undeniable: annual payroll growth has more than halved over the last year, falling from +1.3% in Dec 2024 to +0.4% in Dec 2025. The slowdown was broad-based across service-providing jobs, government, and goods-producing payrolls. The JOLTS survey also showed the hiring and job opening rates falling to an equal YTD low at the end of Nov.
Implications for the Fed: thoughts on the underlying causes of this labor market stagnation were captured in the recent Fed minutes:
“Participants generally viewed the low dynamism in the labor market as reflecting both lower labor demand amid economic uncertainty… and decreased labor supply associated with lower immigration, the aging population, or reduced participation.” Source: FOMC Minutes 9-10 Dec 2025
Late last year, the Fed explicitly prioritized stabilizing the labor market risks with a series of three (3) risk management rate cuts. With the unemployment rate falling in Dec, markets have pushed expectations for the next rate cut out to Jun 2026 (source: CME Fedwatch). However, the FOMC is likely to remain cautious about the risks to the labor market.
Growth and Activity Indicators Show Some Resilience
In stark contrast to the stagnant labor market, headline growth remains surprisingly resilient.
- The productivity bridge: The Q3 productivity and unit labor costs report was notable for the substantial increase in productivity of +4.9%, which was well above the annual trend. While this is a volatile measure quarter to quarter, the report highlighted how output growth remained strong at +5.4%, despite stagnant job growth. The report also noted that unit profits increased by +6.6% while real compensation for workers decreased by -0.2%. However, this highlights the headwinds for ongoing spending and growth if productivity gains don’t eventually translate into real wage growth.
- Mixed PMI signals: The Dec PMIs showed diverging paths. The S&P surveys showed some slowing of momentum going into year-end, yet both manufacturing and services activity continued to expand at a moderate pace. However, the ISM surveys painted a stark contrast between the manufacturing sector losing steam amid a more negative business backdrop, while services’ momentum continued to strengthen into year-end.
- GDP tracking for Q4: The Atlanta Fed GDPNow tracker ended the week at a +5.1% growth run-rate so far for Q4. While impressive, the notable increase last week was mostly the result of distortions from net export data. Underlying this growth, consumer spending remained steady, while slower housing starts in Nov were a drag on growth.
The central question for the 2026 outlook is whether this “resilient activity” will eventually pull hiring back up, or if the lack of labor market dynamism will eventually begin to feed on itself, creating a broader drag on the US economy.
Australian Inflation Pulse and the RBA
The Aus monthly CPI series showed all three inflation measures remaining above the top of the target 2-3% band; however, headline inflation moved lower to +3.4% this month (from +3.8% in Oct). There was some relief with the monthly trajectories shifting lower, but the question for the RBA will be whether this is a durable change in trend, given the higher monthly rates since Jul 25. The RBA will continue to place more weight on the Q4 quarterly CPI report due out in several weeks. Markets maintained pricing for a hold in the cash rate in the near-term (source: ASX Rate Tracker at 9 Jan 26).
Outlook for the week ahead: US CPI, PPI, retail sales, and Fed speeches
It will be another full week of US data catch-up and the last week of Fed speeches leading up to the FOMC meeting on 27-28 Jan.
US data will add to the inflation picture for Dec, but note that data is likely to remain noisy given the timing challenges related to the restart of data collection. Retail sales for Nov will add the important consumer spending element to growth tracking so far in Q4.
Outside of the data, the US Supreme Court may release its ruling this week (14 Jan) on President Trump’s use of ‘emergency powers’ to impose tariffs. We are also awaiting the announcement of the new Fed Chair nominee.
Key factors & events to watch this week:
US inflation data: CPI for Dec, PPI for Nov, and catch-up of import and export price indexes.
US inflation data continues to catch up after the end of the government shutdown – especially for PPI data this week. The CPI for Dec may contrast with the notably softer Nov reading, which may have been subject to distortions from the restart of data collection.
- US headline CPI Dec is expected to increase by +0.3% over the month. The annual headline rate is expected to stay unchanged at +2.7%.
- Core CPI is expected to increase by +0.3% in Dec, while the annual rate is expected to increase to +2.7% in Dec, from +2.6% in Nov.
- The PPI data for Oct and Nov will be released this week, together with the import and export price indexes.
US Q4 growth inputs: retail sales and existing home sales.
- US retail sales are expected to increase by +0.4% in Nov, up from 0% in Oct. The control group retail sales figure will be in focus as it feeds into the GDP calculation – and this measure was strong in the prior month, up +0.8%.
- US existing home sales are expected to remain subdued in Dec, but still rising to 4.2m (annualized), up from 4.13m in Nov.
Fed speeches: This is the final week of speeches before the blackout period commences next week, ahead of the first FOMC meeting of the year on 27-28 Jan.
- Two important speeches this week will be on Fri 16 Jan. Fed Vice Chair Jefferson and Vice Chair (Supervision) Bowman will both speak on the economic outlook. This is usually an important topic for any policy signalling ahead of the next FOMC meeting.
- Fed Chair Powell released a firm video statement late on Sunday in response to the Trump administration serving grand jury subpoenas to the Fed last week. There are many implications of this escalation in action by the Trump administration targeted at the Fed – among them, this legal friction may delay or alter the succession timeline. There may be some headline risk around that this week.
This week, the US Treasury will auction and settle approx $586bn in ST Bills, Notes, and Bonds, raising approx. $11bn in new money. Approx $43bn in ST Bills & TIPS will mature on the Fed balance sheet and will be reinvested.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
