We’ve reached the point during every college football season where the big bifurcation usually happens: Fans of bowl-bound teams ready the face-paint and start making guacamole, while the left-outs try to console themselves with “wait ‘til next year.” Here in Colorado, we got a little bit of both — Coach Prime (with a whole bunch of help from a legitimate Heisman candidate and a star quarterback who shares Prime’s last name), happily gave our Buffs an all-but-certain bowl bid, but also left us just short of a Big 12 Championship berth. For that, I guess we’ll have to wait another year.

You’re probably used to hearing “wait ‘til next year” in the context of Big Sports, but less so in the economic realm. The phrase nonetheless featured large in the minutes from the Federal Reserve’s (the Fed) early November meeting, where Fed staffers reiterated their hope that “by 2026, total and core inflation (are) expected to be 2%.”¹

So, I guess it’s really “wait ‘til next year plus one,” but why quibble over details? The point is really that inflation is moving acceptably toward the 2% line in the sand that Fed Chair Jerome Powell recommitted to back in early 2022 when the Fed began ratcheting rates higher. Inside those same minutes Fed economists also expressed relief that faster-than-expected GDP growth and a softer-but-still-robust labor market weren’t likely to get in the way of that goal, thanks to the moderating impacts of rising productivity and slower wage growth. That’s important, because it provides justification enough for the Fed to continue cutting rates, even if the pace of those cuts isn’t likely to be as fast as once assumed.

But optimists should take note – just like the path to a national championship is crowded with obstacles, so too is the path to 2%. Take for example last week’s Personal Consumption Expenditures (PCE) inflation data, which like Aunt Cassie’s turkey gravy, was stickier than it should’ve been: At the core level, prices rose 2.8% — pretty much as expected, but an acceleration from last month and an uncomfortable truth which with the Fed will have to contend as it continues to plot its course out of all this monetary tightening.

In the meantime, the economy continues to soften. (Author’s note: I was tempted to slip in another Thanksgiving leftover joke here but decided against it. You’re welcome.) Case-in-point: The Chicago Institute of Supply Management’s November Purchasing Manager’s Index (PMI), which came in at a lower-than-expected 40.2.¹ That’s not the lowest this forward-looking economic indicator has been of late, but it’s close. It’s also more consistent with an economy that’s contracting than one firmly in expansion mode, which is another inconvenient truth that markets may eventually have to recognize.

Other evidence of a softening (but not collapsing) economy came rolling in last week as well: The Dallas Fed’s manufacturing survey was a disappointment,² with new orders contracting fast. Ditto for its peer survey by the Richmond Fed,³ where the decline in area manufacturing activity was even steeper. Both surveys align better with the Philly Fed’s miss than Empire’s big upside surprise from two weeks ago, again confirming the lumpiness that this kind of data has been on display for more than a year (...must...resist...temptation...to...mention...wife’s...mashed... potatoes...).

But the icing on the cake (er, Cool Whip on the pie?) for the softening argument came from the Chicago Fed’s National Activity Index (CFNAI) — similar in intent to the Conference Board’s Index of Leading Economic Indicators (LEI) that we got a little over a week and a half ago. Like the LEI, last week’s CFNAI was disappointing: All four broad categories inside the index detracted, including personal income and housing — a category that was additive to growth as recently as last month (and ties out to a very disappointing new home sales from the Census Bureau on Tuesday⁴).

But this broadening out of tepidness caused the so-called diffusion component of the index to slip further toward levels that would raise concern, even if overall activity isn’t yet weak enough to indicate much trouble. (For those who might be wondering, in this context “diffusion” is just a fancy word for how widespread an economic phenomenon is: If weakness is spread across a wide number of variables and/or sectors, diffusion is said to be high and the risk of recession is growing. Diffusion is one of the key criteria the National Bureau of Economic Research’s business cycle dating committee uses to officially declare when recessions start and end.)

So, I guess the overall point is this: The economy is softening, which is to be expected after two years of aggressive rate increases that only recently came to an end. And that softness appears to be broadening out, which is worth paying attention to. But so far there are few signs of the kind of economic contagion that would suggest an unwelcome collapse in overall activity, and the labor market appears to be holding up just fine even though there is plenty of precedent suggesting things might have turned out quite differently. And that, friends, is truly something to be thankful for.

What to watch this week

It’s payrolls week again, with Friday’s non-farm payrolls data set to enjoy two separate but potentially powerful tailwinds: A potential post-hurricane recovery and boost provided by Boeing’s strike-ending agreement with its union. The end to Boeing’s strike is the more quantifiable of the two: Estimates suggest that between 40,000 and 42,000 workers were involved in the strike, and most of those jobs should find their way back into Friday’s numbers now that the factory floor is humming again. By contrast, the impact (if any) of post-hurricane recovery is all but impossible to guess at. Still, economists will be looking for evidence of both in Friday’s numbers — if it's there, great. If it isn’t, expect some negative headlines.

As always, some of the most interesting jobs data might come before Friday’s big event: Pay particular attention to layoff data expected Thursday from Challenger, Gray and Christmas. There is a heavy seasonal component to layoff announcements (no self-respecting HR executive outside of the investment banking world wants to be labeled a scrooge by cutting jobs into the holiday season), and any sizable increase in cuts might bode ill for what might greet workers in the new year. On the other hand, if Challenger’s data is benign (or if the Job Openings and Labor Turnover Survey [JOLTS], expected Tuesday, shows a happy reacceleration of available jobs), it would stand as further evidence that the labor market is still side-stepping whatever weakness the economy might be tossing its way.

In terms of the productive economy, we get final November Purchasing Managers Indices for both manufacturing (Monday) and services (Wednesday). At the risk of sounding repetitive, the results are very likely to show the services sector continuing to expand even while manufacturing languishes. But for what its worth, one interesting (and easy-to-miss) anecdote tucked inside the above-mentioned Chicago PMI might provide a temporary boost to these and other forward-looking surveys: Nearly one-in-five businesses surveyed by ISM Chicago said they are (or have considered) building inventories ahead of “further supply chain disruptions” — a kinder way of acknowledging that tariffs proposed by the incoming administration might temporarily boost buying activity as businesses hope to avoid worsening trade flows that might result.

On Friday, we’ll get two separate reads into the minds of consumers when the University of Michigan releases another update of its consumer sentiment survey and the Fed releases its monthly accounting of consumer credit. Consumer demand has been resilient throughout the cycle, and a continuation of that trend through the holiday gift-giving season — provided it doesn’t rely exclusively on higher credit card balances — could help build optimism surrounding the economy’s durability into next year.

Finally, the Fed’s Beige Book — the Charlie Brown of the economic forecasting world for the lack of respect it gets — will hit newsstands on Wednesday. Browse its pages if you want to see how many different synonyms for the word “moderate” can reasonably appear in a single publication.