December 08, 2025 – The latest economic data paint a picture of a gradually cooling U.S. economy as labor-market softness broadens, tariff pressures filter more noticeably into business decisions, and service-sector momentum moderates. While inflation continues to ease, providing the Federal Reserve with greater room to lower rates, hiring has weakened sharply among small businesses. Manufacturing sentiment has also deteriorated amid rising cost burdens and supply chain uncertainty. The services sector remains in modest expansion, though employment indicators highlight ongoing fragility. Meanwhile, an excess supply of apartment buildings and weaker household formation are driving rents lower and vacancies higher in the multifamily market, underscoring shifting dynamics across the rental housing sector. Together, these developments reflect an economy that is navigating through mixed signals and one that is increasingly more sensitive to policy decisions in the months ahead.

Small Businesses Drive Surprise Drop in November Payrolls as Labor Market Weakens ahead of Fed Meeting: Private-sector hiring weakened sharply in November, with ADP reporting a surprise decline of 32,000 jobs as small businesses shed 120,000 positions—even as larger firms added 90,000. This downturn, the steepest since early 2023, reflected broad-based losses across professional and business services, manufacturing, information and construction, with only education, health, and leisure showing gains. Wage growth continued to cool, signaling easing labor pressures. Arriving just before the Federal Reserve’s December meeting, the report reinforces evidence of a softening labor market and strengthens the case for further rate cuts, even as policymakers remain divided over whether balancing rising employment risks or combatting still-elevated inflation should be the priority.

Delayed Tariff Effects Begin to Hit U.S. Firms, Raising Risk of Job Cuts in 2026 as Manufacturing Sentiment Weakens: Corporate surveys indicate that the delayed effects of 2025’s tariff increases are beginning to weigh on businesses, with rising import costs prompting some firms to plan workforce reductions, restructure operations, or shift production offshore. Although headline economic growth remains solid and recent payroll data has not dropped off sharply on a consistent basis, November ISM responses show deteriorating business conditions, falling employment sentiment, and heightened supply chain uncertainty across manufacturing sectors. While tariffs have not yet meaningfully slowed global economic activity, U.S. imports subject to tariffs have already declined sharply, and the full drag on economic growth will likely materialize in 2026.

Services Sector Continues Modest Expansion, but Labor Softness and Tariff Pressures Signal Uneven Momentum: The services sector expanded for the ninth month in 2025, with the ISM Services Purchasing Managers Index (PMI) edging up to 52.6 in November, despite the general upward trend exhibiting signs of gradual cooling. Business activity and new orders stayed in growth territory, but service-sector employment contracted for the sixth straight month—consistent with softening labor indicators elsewhere in the economy. Supplier delivery times lengthened due to shutdown-related logistics disruptions and tariff-driven customs delays, pushing the Prices Index to a still-elevated 65.4 despite a monthly decline. While inventories and backlogs improved, respondents continued to cite tariffs, affordability pressures, and uncertainty from the government shutdown as persistent headwinds.

Cooling Core Inflation Strengthens Case for Fed Rate Cut as Labor Market Softens and Consumer Expectations Ease: Delayed September data showed core PCE inflation—the Fed’s preferred metric—rose just 0.2% month-over-month and slowed to 2.8% year-over-year, slightly below expectations and bolstering the case for another rate cut on December 10. Despite increases in tariff-driven goods prices, overall inflation came in better than expected as services inflation eased and household spending grew more cautiously. With income rising 0.4% and spending up a softer 0.3%, consumers appear increasingly cautious amid slower hiring and emerging pockets of layoffs. As of December 8^th, markets assign an 87% probability to a December rate cut, even as Fed officials remain split between supporting a weakening labor market and guarding against lingering inflation pressures.

Apartment Rents Fall Again as Record-High Vacancies and Weak Demand Undercut Multifamily Market: The multifamily rental market continues to soften, with the national median rent falling 1% in November—its fourth monthly decline—and vacancy rates rising to a record 7.2% as new supply outpaces demand. Weaker household formation, especially among younger renters affected by labor-market uncertainty, has helped pushed average list-to-lease times to 36 days and has reduced landlords’ pricing power. For real estate markets, the combination of oversupply, slower rent growth, and elevated vacancies implies that there is more downward pressure on rental yields and risks remaining on the rise for multifamily investors.

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