Economic Signals Hold Steady as Growth Remains Intact and Government Averts a Lengthy Shutdown

Matthew Rubin Chief Investment Officer

 

1. A short funding lapse ended last week with a bipartisan agreement, reopening the government while leaving some budget issues unresolved.
2. Unemployment claims rose last week, but broader labor conditions continued to point to a low-turnover environment.
3. Recent ISM data showed expansion in the services sector, another sign of the economy’s continued momentum.

 

1. Government Reopens After Brief Shutdown, Funding Talks Continue

The partial government shutdown ended last week after a four-day lapse, when Congress approved and signed into law a bipartisan funding compromise. The agreement reopened federal agencies and allowed normal operations to resume, while setting aside additional time for lawmakers to continue discussions about the Department of Homeland Security’s budget.¹

Although the shutdown was brief when compared to past funding gaps, the path to resolution involved several days of uncertainty. Negotiations unfolded against a tight deadline, and while the Senate approved the compromise before funding expired, delays in the House led to a temporary weekend shutdown. Momentum improved early last week as congressional leaders worked to advance the bill, and final approval followed soon after.

The funding plan restored operations across most of the federal government and limited near-term economic disruption.¹ However, it did not provide full-year funding for Homeland Security, leaving that department operating under a short-term extension.¹ Lawmakers now face a narrow window to continue budget negotiations before funding for that agency expires again. While the government has reopened, further debate is expected.

2. Labor Market Shows Modest Softening, Remains Stable

Initial jobless claims rose 22,000 to 231,000 last week, above expectations.² While the increase drew attention, short-term claims data often fluctuate and can be influenced by timing and seasonal effects. On average, initial claims have remained near 211,000 so far this year, a level still below last year’s pace and consistent with limited layoffs.²

Continuing claims, which track the total number of individuals receiving unemployment benefits, increased to 1.84 million, generally aligned with forecasts.² This suggests that while some workers are taking longer to find new positions, the overall level of labor market stress has not shifted materially.

Other indicators point to a gradual cooling rather than a sharp slowdown. Job openings declined to 6.5 million in December, falling below the number of unemployed workers, which stood near 7.5 million.³ Even so, the unemployment rate held at a modest 4.4%.¹ Taken together, the data suggest we are in a continued low-hiring, low-firing environment consistent with gradual easing in inflation pressures.

3. Services Activity Continues to Expand, Supporting Growth Outlook

The ISM Services Index reading released last week indicates continued expansion in the U.S. services sector. The index registered 53.8 in January, close to expectations and comfortably above the threshold of 50 that separates expansion from contraction.⁴ The new orders component, a forward-looking measure of demand, also stayed in expansion territory at 53.1, though it eased modestly from earlier levels.⁴

The services data followed a stronger-than-expected manufacturing reading earlier in the week, suggesting an improving balance across key parts of the economy. This is notable given the outsized role services play in overall economic activity, accounting for roughly three-quarters of U.S. gross domestic product. Strength in this sector tends to carry broad implications for employment, income growth, and consumer spending.

The combination of ongoing services expansion and signs of stabilization in manufacturing point to continued economic momentum. In our view, based on recent data, there are limited indications of an imminent slowdown. Instead, we suggest that growth may be holding at a pace consistent with, or slightly above, longer-term trends. As of last week, incoming indicators continue to align with a resilient economic backdrop rather than recessionary conditions.

For the period ending 2/6/26.
* Small-cap stocks are represented by the Russell 2000^® Index. International stocks are represented by the MSCI EAFE. Bonds are represented by the Bloomberg US Aggregate Bond Index. Oil is represented by WTI Oil (West Texas Intermediate Oil), a benchmark for light, sweet crude oil and a primary measure for pricing oil contracts and futures in the U.S.

Sources
¹ Reuters
² U.S. Department of Labor
³ Bloomberg
⁴ Institute for Supply Management

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A Composite PMI is a single index that tracks economic activity by combining the performance of both the manufacturing and services sectors, providing a comprehensive overview of overall business conditions.
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The Consumer Price Index (CPI) measures the monthly change in prices paid by U.S. consumers. The Bureau of Labor Statistics (BLS) calculates the CPI as a weighted average of prices for a basket of goods and services representative of aggregate U.S. consumer spending. The CPI is a measure of inflation and deflation. The CPI report uses a different survey methodology, price samples, and index weights than the producer price index (PPI).
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Comparative Index Descriptions: The Standard & Poor’s (S&P) 500 Index, The Russell 200^® Index, The NASDAQ Composite Index, The MSCI EAFE Index, Dow Jones Industrial Average^® (Dow Jones or DJIA), The Bloomberg Barclays US Aggregate Bond Index (US Agg Bond), The CBOE Volatility Index (VIX). CSP2026001_06