U.S. Economy This Week, Feb. 28, 2025
As has been the case in recent months, the data are sending mixed signals about the state of the U.S. economy. Ph.D. economist Bob Genetski guides you through with a quick, commonsense analysis.
Guest post by economist Robert Genetski, Ph.D.
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Today’s report on January spending, income, and inflation shows the economy continuing to grow, albeit at a slower pace. The important inflation measures were below the Fed’s estimates. They show monthly increases closer to 3½% than estimates of above 4%. Year-over-year inflation remains at 2½% for both total and core inflation.
Yesterday’s GDP report confirmed a modest slowdown toward year-end. The GDP measured by the spending side and the income side alike show an annualized increase of 4½%.
The slowdown was also apparent in the advanced S&P business survey for February, where the important service sector slowed to a barely positive 50.4%. The manufacturing sector came in at 52, its best showing in a long time.
Coming up next week, Monday’s Institute for Supply Management (ISM) manufacturing survey is expected to show a slight positive (51%), close to the already reported advanced S&P survey. Two other readings of interest will be new manufacturing orders and inflation, both of which were strong at 55% in December.
Wednesday’s ISM service sector report will help determine if the weakness in the advanced S&P survey also is captured in this report. Of interest will be if December’s slowdown in new orders to 51%, (barely positive) has improved. We expect orders to remain subdued, in the low 50% area.
Wednesday’s ADP February payroll report is expected to show a gain of 200,000, up from 183,000 in January. In contrast, we expect less than 183,000.
Many expect Friday’s February employment report to continue to show total job gains well above the 143,000 in January. The January number was boosted by a 32,000 gain in government jobs. We suspect the impact of DOGE may begin to appear in February’s report.
The S&P500 and Dow are down 4% from their peaks, while the Nasdaq and small cap ETFs are down 6% and 12%, respectively. Investors are concerned over a slowdown in the economy and tariffs. One positive from a slowdown—relief from inflation.
Financial markets responded to a possible slowdown by reducing the yield on 10-year T-Notes to 4.3%. Long-term rates are down 50 basis points from their peak of 4.8% in early January. As the interest rate chart above shows, technical indicators currently point to further downward rate pressure.