Weekly Market Commentary March 3, 2025 The Markets Is it supposed to be doing that? At the end of last year, economists believed the chance of a recession in 2025 was relatively low. In December, economist Torsten Sløk wrote, “The outlook for the US economy remains strong with no signs of a major slowdown going into 2025.” The economy has not been performing as expected, though. “The U.S. Citi Economic Surprise Index, which tracks the difference between economic data and expectations, has fallen to its lowest level in almost six months. The index rises when the surprises are favorable, so the decline means the data are showing a less robust U.S. economy than expected,” reported Jacob Sonenshine of Barron’s. One surprising piece of data is the slump in U.S. consumer confidence. The University of Michigan Consumer Sentiment Survey reported that consumers have become less optimistic. Sentiment declined by 9.8 percent from January to February. The Conference Board Consumer Confidence Index showed a 7.0 percent drop over the same period. “The decrease was unanimous across groups by age, income, and wealth…Year-ahead inflation expectations jumped up from 3.3 [percent] last month to 4.3 [percent] this month, the highest reading since November 2023 and marking two consecutive months of unusually large increases,” reported Surveys of Consumers Director Joanne Hsu. The slump in sentiment is concerning because consumer spending is the primary driver of U.S. economic growth – accounting for about two-thirds of gross domestic product (GDP), which is the value of all goods and services produced in the country over a certain period. In general, when consumers are uneasy, spending tends to slow and so does economic growth. Currently, one consumer group has more influence than others do. When analysts took a closer look at consumer spending, they found a growing wealth gap. “The wealthiest 10% of American households—those making more than $250,000 a year, roughly—are now responsible for half of all US consumer spending and at least a third of the country’s gross domestic product,” reported Amanda Mull of Bloomberg. “In the 1990s, spending by top-decile earners usually constituted a third or so of annual consumer spending overall. Now, their spending constitutes the largest share of the consumer economy in data going back to 1989.” Last Friday, we learned that consumer spending declined 0.5 percent month to month, after inflation, in January. It was the biggest monthly decline in almost four years. “US consumers unexpectedly pulled back on spending on goods like cars in January amid extreme winter weather, and a slowdown in services, if sustained, may raise concerns about the resilience of the economy,” reported Augusta Saraiva of Bloomberg. While we’ve seen a lot of uncertainty and some softer-than-expected economic data, the likelihood of a recession over the next 12 months remains low. Economists polled by The Wall Street Journal’s Economic Forecasting Survey put the odds at 22 percent, reported Andy Serwer of Barron’s. No matter where the economy is headed, investors can manage the risks associated with market volatility through asset allocation and diversification. If you have not reviewed your portfolio recently, this is a good time to make sure your asset allocation is appropriate for your financial goals and risk tolerance. If you would like help, let us know. Last week, the Dow Jones Industrial Average moved higher, while the Standard & Poor’s 500 and Nasdaq Composite Indexes moved lower. Treasuries rallied and the yield on the benchmark 10-year U.S. Treasury moved lower over the week. | 
