It’s been cold here in Denver. Probably where you are, too, because most of the lower 48 have been locked in the grip of a “polar vortex” since the start of the weekend. But as I write this on Tuesday morning, it’s finally beginning to thaw a little.

You could say the same thing about the economy, too: It’s warming up a little, but only a little, and mostly in just the right places. Let’s start with last week’s small business sentiment survey from the National Federation of Independent Businesses (NFIB), who has been taking the temperature of the nation’s growth-minded, small-enterprise entrepreneurial set for more than five decades. You might recall that the NFIB’s survey was well below normal for the better part of three years (conveniently, “normal” from the perspective of the NFIB’s data is at exactly 98 – easy to remember for anyone who has ever used a thermometer to take a kid’s temperature...) But the NFIB’s data bounced sharply in November and hasn’t looked back since, jumping another 3.4 points to 105.1 in December — its  highest level since 2018.¹

More than a warming up, that’s downright febrile. And a turn in sentiment that is that quick and decisive for a sector of the economy as important as small businesses (which, you’ll remember, still account for the vast majority of registered enterprises in the U.S. and represent a very significant slug of economic activity,) might suggest an unwelcome overheating elsewhere in the economy. Not so, at least not in the area that matters most to markets (and consumers) right now: namely, inflation. Tuesday’s Producer Price Index (PPI) was softer than expected on both the headline (+0.2% versus expectations of +0.4%), and on the core (which excludes volatile food and energy prices and was flat versus expectations of +0.3%).²

But that favorable read on inflation failed to inspire markets all that much —Tuesday’s post-PPI performance was downright ho-hum for both stocks and bonds. But the Consumer Price Index (CPI) release the following day generated a little more heat than the previous day’s PPI beat even though it was much closer to in-line with expectations: December’s CPI reading came in at +0.4%, more or less exactly what economists expected (and things were only marginally better on the core side of the ledger).³  Yet treasury yields dropped sharply on Wednesday and stocks had their best day so far this year.

It’s hard to say why Thursday’s merely in-line CPI seemed to catch the market’s fancy so much more decisively than an obvious beat by the previous day by PPI, except maybe that an in-line CPI was simply enough to validate the message that the better-than-expected PPI seemed to be trying to convey. Or, it might also have had something to do with comments by Fed Governor Christopher Waller, who used the relatively benign inflation data to re-open the door a crack to as many as three or four rate cuts this year, even though last month’s updated dot-plot had successfully scaled market expectations back to just two.⁴ Notably, Waller also tossed a little cold water on the notion that the trade policy of incoming President Donald Trump would be plainly inflationary as some are assuming — something that some analysts found evidence of in the inflation data as well and might work to change the thinking about the future direction of prices in the grand scheme of things.

Meanwhile, a similar dichotomy between warming and cooling was notable elsewhere in last week’s data as well. For example, Wednesday’s Beige Book shifted up half a gear, with all 12 of the Federal Reserve’s districts reporting either “slight” or “modest” growth.⁵ That’s a slight (or modest) improvement from the last edition of the Fed’s own survey of its member banks, when responses were almost perfectly split between a tiny amount of growth and a little bit of contraction.

It’s not hard to argue that this is warming exactly where you want to see it given the current environment: anecdotally, and from a credible source (the Fed itself.) Meanwhile, last week’s data also contained evidence of cooling in one area that could probably benefit from a little cooling: Retail sales. On a nominal basis (that is, unadjusted for inflation), sales at the retail level came in at 0.4% for December, two-tenths of a percent below expectations and about half the rate of growth registered in November.⁶ That’s good news if you’re concerned about inflation suddenly catching fire again.

But nowhere was the hot-and-cold theme as in-your-face obvious as it was inside our first two regional Federal Reserve (Fed) manufacturing surveys of 2025. On Wednesday, a collapse in new order activity and a big drop in the number of hours worked highlighted a significant deterioration in manufacturing activity in New York state.⁷ But just down the road in Philadelphia, the Philly Fed zigged while the Empire zagged, with new orders exploding, launching the headline index higher toward what would turn out to very nearly be an all-time record.⁸ This isn’t necessarily new — Empire and Philly haven’t really been in close agreement of late — and it might reflect a differing manufacturing base in each respective region more than anything more relevant to the level of aggregate demand across the entire economy.

Finally, you could also find warming and cooling trends inside last week’s opening salvos in the ongoing barrage of fourth-quarter corporate earnings if you looked hard enough. The warming trend came from the big banks, who almost universally reported better-than-expected earnings and upbeat guidance for 2025. Comments were the most positive for banks that also have robust trading operations, but with only one or two misses, interest-earning lines of business fared well, too. More notably, forward-looking and macro-relevant line-items inside these reports (like credit loss provisions and bad-debt write-offs) were also tamer than expected — a clear improvement from recent trends where banks have been more reticent about things like credit.

But as a counterpoint to the apparent strength of big-bank earnings, trucker JBHunt’s results were a miss as a result of expanding costs and guidance for the coming quarter was weak — a possible early warning sign that the physical movement of goods across the country is slowing. In the past, I’ve viewed both bank earnings and transportation trends as decent harbingers of what might lie ahead for the economy, which admittedly sets up a contradiction in my internal wiring that I can’t quite resolve.

Besides, there are still plenty of reasons to at least stay prepared for another potential cold snap in the data, even if things seem a little milder in the here-and-now. For example, as bullish as they were, Chris Waller’s rate-cut comments might have just been a clever way to reiterate “no” to cuts in January and March (maybe even May) as much as a definitive re-setting of expectations for the remainder of the year. Moreover, it’s still too soon to rule out a sudden turn in the labor market: Meta became the latest big tech to announce layoffs by suggesting it would cut around 5% of its payroll last week, while the aforementioned Beige Book noted that “some firms reported uncertainty about future staffing needs” just after acknowledging that layoff plans remain subdued (but just before warning about rising delinquencies by small businesses and lower-income households). 

So as always, enjoy the warming trend but keep your winter coat close at hand and your eyes on the most current forecast — it tends to change quickly this time of year.