January 12, 2026 – As 2025 drew to a close, the U.S. economy showed signs of both resilience and caution. Holiday spending increased moderately, driven by robust ecommerce growth, yet concerns loom over rising consumer debt and a potential spending pullback in early 2026. Meanwhile, job creation remained soft, capping a year of weak hiring, even as wages edged higher and unemployment dipped slightly. On the policy front, new proposals targeting housing affordability and mortgage rates sparked debate, while consumer sentiment reflected growing pessimism about the labor market. Buckle up, 2026 could be another interesting ride.

Holiday spending increases moderately and a pullback is expected in early 2026: Holiday spending rose modestly in 2025 as consumers continued to show resilience at the end of last year, according to a report released by Visa. U.S. consumers increased their holiday retail spending by 4.2% year-over-year for the seven-week period starting November 1, as in-store sales climbed 3% while ecommerce spending jumped a more robust 7.8%. Despite the solid increase in online sales, brick-and-mortar sales continued to account for the bulk of holiday spending, capturing 73% of total retail payment volume. Electronics was the top performing category for the holiday season with an increase of 5.8% from the previous year, while apparel/accessories also posted strong gain (5.3%) year-over-year. The home improvement sector was less impressive, on the other hand, with furniture/home furnishing inching up only 0.8%, while building materials and garden equipment fell 1% from 2024. With many consumers swiping their credit cards or using the buy-now/pay-later payment option for their holiday purchases, credit debt will likely rise in the coming months, which could result in a pullback in consumer spending in early 2026.

December soft job growth capped a year of weak hiring: The U.S. labor market ended 2025 with a positive but soft note, with nonfarm payrolls rising a seasonally adjusted 50k in December, a level lower than the downward revised 56k in November and the consensus forecast of 73k. With October’s and November’s job hirings being adjusted down by 68k and 8k respectively, the three-month average pace of net new job creation registered a -22k in December. On a sector-to-sector basis, restaurants and bars (+27k) had the biggest job gains, followed by health care (+21.1K) and social assistance (+17.4k). Federal government bounced back with a 2k job growth last month, while retail trade cut 25k jobs in December. For the year as a whole, 2025 was the worst year of hiring since 2020. Only 584k jobs were created in the last 12 months, as compared to more than 2 million jobs added in each of the prior two years. The unemployment rate offered slightly better news, as it dipped 0.1 percentage point (ppt) to 4.4% in December from 4.5% recorded in the prior month. Average hourly earnings also increased on an annual basis by 3.8%, which was 0.2ppt higher than expected. Overall, the labor market continues to cool, but the pace of the slowdown will likely be gradual and orderly in the next 12 months.

GSEs could purchase $200 billion in mortgage bonds to lower rates: President Trump announced that he will direct Fannie Mae and Freddie Mac to purchase $200 billion in mortgage bonds to lower borrowing costs, claiming the move would “drive mortgage rates down, monthly payments down, and make homeownership more affordable.” The plan, if implemented, will hopefully help improve housing affordability and officials have confirmed that the purchases will occur in the public market. Markets reacted quickly, with the average 30-year fixed mortgage rate falling to around 6% - its lowest level since early 2023, after hovering near 6.2% before the announcement. The sharp decline may just be an overreaction of the market though, and the impact could be more modest in the long run, given the $11 trillion size of the mortgage-backed securities market. Even a small dip in rates, however, is welcome as it will offer relief for buyers who are struggling with high borrowing costs.

President Trump proposes to ban Wall Street from buying homes: The president of the United States also posted on his social media account that he wants to ban large institutional investors from buying single-family homes. His announcement last week did not include details about how such a ban would be carried out but pledged to seek congressional codification of the policy. The potential impact is debatable though, as institutional investors represent a small share of the market. In response, the National Association of REALTORS® (NAR) welcomed the focus on affordability but urged a collaborative approach. NAR proposed incentivizing institutional owners to sell homes to owner-occupants and expanding housing supply, emphasizing that policy should strengthen communities and support first-time buyers rather than simply restrict demand.

Consumers feel more pessimistic about job outlook but less concerned about personal finances: Results from the New York Fed’s Survey of Consumer Expectations indicate that while consumers’ expectations about their current and future financial situation improved in December, their perceptions and expectations about their job outlook had gotten worse. More survey respondents believed that they will be fired within the year as the mean perceived probability of losing one’s job in the next 12 months increased by 1.4 ppts to 15.2% in December, the highest since April. The odds of finding a job in the next three months if one’s current job were lost also dropped sharply by 4.2 ppts to 43.1% last month, reaching a series low. Meanwhile, consumers have become less concerned about their finances, as the share of respondents who believed that they are financially worse off than a year ago came down to 36.4% from 39% recorded a month ago. The share who believed that they would be better off a year from now also jumped from 26.5% to 31.3%. With stock market indices setting new record highs multiple times in the past few weeks and a K-shaped economy becoming more apparent, Americans may continue to worry about their jobs but feel less anxious about their financial well-being at the same time in the near term.

Note: This summary report gets updated every Monday by 6:00 pm PST. Feel free to email us at [email protected] if you have any questions and/or feedback.

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