The United States economy today looks like a tug‑of‑war: powerful investment in artificial intelligence and fresh fiscal stimulus are pulling growth along, while tariffs, a softening labor market and the after‑effects of a record‑long government shutdown tug in the opposite direction.
As of Wednesday, December 3, markets are leaning toward the optimistic side of that rope. Stocks are climbing, the dollar is sliding, and traders are almost certain the Federal Reserve will cut interest rates at next week’s policy meeting—even as new data show growth moderating and inflation stuck around 3%.
Fed rate‑cut fever is driving markets
Global markets are in “risk‑on” mode this morning. A rebound in equities, a record high in copper and a weaker dollar are all being fueled by expectations that the Fed will deliver another rate cut at its December 9–10 meeting. Reuters
- Wall Street futures are pointing to modest gains in the S&P 500 and Nasdaq later today, with analysts saying equities are likely to be “well supported” going into the Fed meeting. Reuters
- The dollar index is heading for its ninth straight daily decline, with the greenback weaker against the euro, yen and sterling as investors price in a more dovish U.S. central bank.
- Treasury yields remain elevated but have eased: 10‑year yields sit just above 4%, while 2‑year yields have dipped toward 3.5%, reflecting expectations of future rate cuts.
A big part of the story is politics at the Fed. White House economic adviser Kevin Hassett has emerged as the clear frontrunner to replace Jerome Powell as Fed chair next May, and markets see him as an aggressive rate cutter.
Bank of America flipped its call this week and now expects a 25‑basis‑point cut in December, plus two more quarter‑point moves in 2026, bringing the policy rate down toward 3.00–3.25% over time. According to Fed funds futures data cited in the same report, traders are pricing roughly an 85–90% chance of a cut next week.
Not everyone at the Fed is thrilled about that idea. Minutes from the central bank’s last meeting showed “many” officials viewed a December cut as “not appropriate,” underscoring internal unease about easing policy while inflation is still above target. Bloomberg+1
Record shutdown leaves a data hangover
Today’s economic news is also about what we don’t know—at least not yet.
The U.S. is still digging out from an unprecedented 43‑day federal government shutdown, which began on October 1 and ended November 12 after Congress finally passed temporary funding.
During the shutdown:
- About 670,000 federal employees were furloughed, while roughly 730,000 worked without pay.
- Nearly 3 million paychecks were withheld, representing an estimated $14 billion in lost wages before back pay is factored in.
Bureaucrats are now scrambling to catch up on missed data:
- The Bureau of Labor Statistics (BLS) has published a long list of revised release dates, including delays for the Employment Situation report, job openings data and wage statistics.
- The Bureau of Economic Analysis (BEA) has canceled the advance estimate of Q3 2025 GDP and pushed several key reports—including September and October personal income and outlays—into December.
- The Federal Reserve’s G.17 Industrial Production report, originally due October 17, is only being released todayat 9:15 a.m. Eastern.
A Reuters rundown of the revised calendar shows that September import and export prices and industrial productionare both due today, September personal income and PCE inflation on December 5, the Employment Cost Index on December 10, the delayed November jobs report on December 16, November CPI and Real Earnings on December 18, and the Q3 2025 GDP estimate on December 23.
Treasury officials estimate the shutdown knocked roughly $11 billion off economic output, but argue it is not enough to tip the overall economy into recession.
Fresh data today: services still expanding, factories still hurting
Despite the data drought, a few pieces of fresh information are giving a clearer picture of the U.S. economy’s current momentum.
1. Services sector: Growing, but a bit slower
The ISM non‑manufacturing (services) PMI for November, released today, eased to about 52.0, slightly below both October’s reading and economists’ expectations around 52.4—but still clearly above the 50 line that separates expansion from contraction.
That suggests the services‑heavy core of the U.S. economy is still growing, even as demand cools and businesses become more cautious ahead of the Fed meeting and potential Supreme Court decisions on tariffs.
2. Manufacturing: Ninth straight month of contraction
On Monday, the ISM’s manufacturing PMI showed that factory activity contracted for the ninth month in a row, dropping to 48.2 in November from 48.7 in October.
- Tariffs on imported vehicles, parts and other goods are raising input costs and dampening demand.
- Some manufacturers are tying layoffs and offshoring decisions directly to the tariff environment and to disruptions from the shutdown.
- New orders have been weak in nine of the last ten months, a sign that companies remain wary about near‑term demand.
In short, U.S. manufacturing is “stuck in the doldrums”, even as certain AI‑related sectors enjoy strong demand.
3. Industrial production: A modest rebound in September
The Federal Reserve’s delayed G.17 report—which finally dropped today—shows that industrial production rose 0.3% in September, growing at a 2.5% annual rate over the third quarter. Manufacturing output increased 0.4%, mining was up 0.4%, and utilities output slipped 0.3%. Total industrial production now stands about 0.1% above its level a year earlier.
That’s hardly a boom, but it does show underlying momentum outside the most tariff‑exposed corners of the economy.
4. Inflation still hovering around 3%
Inflation data released earlier—and heavily referenced in markets today—show that consumer prices rose 3.0% year‑over‑year in September 2025, up from 2.9% in August.
- Core inflation (excluding food and energy) is also running at about 3.0% over the past year.
- Analysts note that tariffs have contributed to a recent re‑acceleration in inflation, even as shelter costs and some goods prices have cooled.
The Fed’s preferred gauge—PCE inflation for September—will be released on December 5, after being delayed by the shutdown. BEA has confirmed the new timing, and markets are braced for a number in the same ballpark as CPI.
Labor market: Unemployment creeping up, not collapsing
The latest available jobs data—finally released late last month because of the shutdown—paint a picture of a cooling but not collapsing labor market:
- The unemployment rate rose to 4.4% in September, the highest in roughly four years, up from 4.3% in August and 4.1% a year earlier.
- The number of unemployed people climbed to about 7.6 million.
- Fed researchers note that the rise was driven largely by more people entering the labor force and looking for work, rather than a sudden collapse in hiring.
The Chicago Fed’s labor‑market indicators and private estimates suggest the jobless rate has stayed around 4.4% into October, with some distortion from the shutdown week.
Still, payroll growth remains positive, and economists generally describe the trend as a gradual cooling rather than a recession‑style spike in unemployment.
Today, markets are also watching ADP’s private payrolls report for November, which is scheduled for release this morning and expected to show only modest job gains after a softer October print.
Growth outlook: Slower, but better than many peers
Despite the wobblier labor market and manufacturing slump, most major forecasters still see the U.S. avoiding recession in 2025.
- The IMF projects U.S. real GDP growth of 2.0% in 2025 and 2.1% in 2026, supported by looser financial conditions, a weaker dollar and the large fiscal package informally dubbed the One Big Beautiful Bill Act (OBBBA).
- The OECD’s December 2025 Economic Outlook puts U.S. growth at 2.0% in 2025, slowing to 1.7% in 2026before nudging back toward 1.9% in 2027.
- The Atlanta Fed’s GDPNow model estimates Q3 2025 growth at roughly 3.9% (annualized), signaling solid momentum ahead of the delayed official GDP release later this month.
A new December forecast from UCLA Anderson describes a “slowing but resilient” economy. It highlights:
- A huge wave of AI‑related capital spending—projected 2025 investment has already blown past $400 billion, far above earlier expectations.
- Fiscal support from the OBBBA, which offers tax incentives for corporate investment.
- Offsetting drags from tariffs, policy uncertainty and a gradually weakening labor market.
UCLA economists expect unemployment to edge up to about 4.5% by the end of 2025 and inflation to peak near 3.5% (annualized) in early 2026, before gradually cooling—though likely staying above the Fed’s 2% target.
Tariffs and the AI boom: A two‑speed economy
One of today’s big themes is how uneven U.S. growth has become.
Factories under tariff pressure
Reuters’ deep dive into the latest ISM manufacturing report shows:
- A ninth straight month of contraction in factory activity.
- Firms in transportation equipment and other sectors explicitly linking layoffs and offshoring to President Trump’s sweeping tariffs on vehicles and auto parts.
- New orders shrinking and only a handful of industries—such as computers and electronic products—still expanding.
Tariff‑related price increases are also feeding into the recent uptick in inflation, especially for goods, even as housing and some services cool.
AI investment powering pockets of strength
At the same time, AI‑related spending is acting like a booster rocket for certain sectors:
- UCLA estimates that AI infrastructure investment in 2025 has already exceeded $405 billion, well above the $250 billion originally projected.
- The IMF and OECD both single out AI and digital infrastructure as key reasons the U.S. growth outlook looks stronger than it did right after this year’s tariff hikes were announced.
But there are warnings, too. The OECD and others flag a possible “AI bubble” in equity markets as a “key downside risk” for the U.S. economy if valuations get too far ahead of earnings. Axios+1
Households: Inflation is cooler, but many still feel squeezed
From the perspective of families and small businesses, today’s macro numbers can feel more stressful than the averages suggest.
- Headline CPI inflation may “only” be 3.0% year‑on‑year, but that still means prices are rising faster than the Fed’s target and faster than many wages. Bureau of Labor Statistics+1
- An analysis cited by Investopedia finds that nearly 25% of U.S. households now spend over 95% of their income on necessities, with paycheck‑to‑paycheck living particularly acute in parts of the Northeast and Midwest.
- While wage growth has improved, it has not fully kept pace with the combination of tariff‑driven price increasesand higher borrowing costs.
For small businesses in manufacturing, construction and retail—especially those exposed to tariffs or federal spending cuts—the combination of higher input costs, slower demand and an uncertain data backdrop is making it harder to plan hiring and investment.
What to watch next
For anyone following U.S. economy news today and over the next few weeks, here are the key dates that markets are tracking:
- Today, December 3
- ADP National Employment Report (November, private payrolls)
- ISM Non‑Manufacturing (Services) PMI for November
- September import and export prices (BLS)
- September Industrial Production and Capacity Utilization (Fed G.17)
- December 5
- Personal Income and Outlays for September (including PCE inflation) – delayed BEA release.
- December 9–10
- Federal Reserve FOMC meeting, where markets expect a 25‑bp rate cut, even though some Fed officials have expressed reservations.
- December 10–18
- Employment Cost Index (Q3), delayed JOLTS data, and November CPI & Real Earnings—all critical for the inflation and wage‑growth picture.
- December 16 & 23
- Revised jobs report and delayed Q3 GDP and corporate profits, which will finally give a more complete read on how the economy performed through the shutdown period.
Put together, today’s picture is one of a slowing but still resilient U.S. economy: growth around 2%, inflation around 3%, unemployment edging higher but not spiking, factories under pressure from tariffs, but services and AI‑driven investment keeping the overall expansion alive. Whether the Fed’s expected December rate cut turns that delicate balance into a “soft landing” or fuels new risks is the central question hanging over the rest of 2025.
