The latest on jobs, a divided Fed, manufacturing and the future of Venezuela’s oil industry.
I had occasion to be in New York City at the start of the new year along with my family. Walking through Rockefeller Center, we gaped at the always stunning tree and lights, and we also enjoyed the synchronized light and music show playing across the façade of the iconic Saks Fifth Avenue flagship store. This was as the news emerged that the iconic retailer had missed a debt service payment and is likely facing bankruptcy. After loading up on debt to buy the likes of Neiman Marcus and Bergdorf Goodman, leadership failed to harness the synergies of a global brand. Struggles to pay vendors spiraled into low inventory, reduced sales revenue and they now face reorganization or liquidation.
I stared at the storefront flashing with lights, crushed in close with a sea of global tourists in solidarity in that moment, and realized I was looking at probably one of the most valuable assets of the company—its real estate. And forgive me, but in that moment, I wished that next year, when I return to NYC, I would not be seeing the façade of an AI data center instead. Some things need to be preserved, right?
Even though the markets continue to hang tough at high levels, economic data continues to deliver a bit of a tale of woe, as exemplified by this week’s employment report. December’s job gains were just 50,000, capping off the weakest year of employment growth outside of recession years since 2003.
Hiring has stalled across industries, with a combination of stubborn inflation, still high interest rates, President Trump’s trade and immigration policy, DOGE cuts and government shutdowns, and rapid AI adoption all contributing to the downturn. Revisions to prior month data meant that, in 2025, payroll gains averaged just 49,000 jobs a month, according to the Bureau of Labor Statistics.
However, some pundits believe 2025’s labor market underperformance shows the economy was able to skirt recession, and the worst is behind. They also point to the decline in the unemployment rate, which fell to 4.4%, according to the latest reading. So while companies may be slow to hire, they are also slow to fire.
Wage growth came in at 3.8% annualized in December, demonstrating the continued pressure on companies’ margins as it seeks to attract and retain workers, though the pace of increases remains well off the highs seen in 2022.
Of course, this mediocre jobs report had some speculating the Federal Reserve would feel more pressure to cut interest rates. But Fed officials are keeping us all guessing, with Minneapolis Fed President Neel Kashkari saying the current level of Fed policy is “close to neutral” given the ongoing resilience of the economy.
Speaking in a CNBC “Squawk Box” interview, Kashkari said, “Over the last couple of years, we kept thinking the economy is going to slow down, and the economy has proven to be far more resilient than I had expected…That tells me, well, monetary policy must not be putting that much downward pressure on the economy. My guess is we’re pretty close to neutral right now.”
In contrast, newly appointed Philadelphia Fed President Anna Paulson said additional rate reductions may be possible later this year given modest economic conditions could warrant further accommodation. At the American Economic Association’s annual meeting in Philadelphia last Saturday, she said, “I see inflation moderating, the labor market stabilizing and growth coming in around 2% this year… If all of that happens, then some modest further adjustments to the funds rate would likely be appropriate later in the year.”
The discrepancy in commentary underscores the ongoing divide between Fed officials. Some are focused on achieving stable, low inflation and others prioritize full employment, but they also hold differing views of the current stance of policy. While officials varied in their support for additional rate cuts both in size and number last year, there was a general agreement that policy was still restrictive. Now, however, after 75 basis points in cuts during 2025, the current target is at or below what some officials like Kashkari estimate to be the neutral level of policy, further complicating the Fed’s ability to determine the appropriate pathway for action going forward, let alone with a united front.
And the data remains all over the place, with consumer spending strong but other barometers like employment and manufacturing weak. On the latter, the ISM Manufacturing Index unexpectedly dropped from 48.2 to a reading of 47.9 in December, the lowest level since October 2024 and the 10th consecutive month in contraction (a reading below 50). In response, the Atlanta Fed lowered its outlook for Q4 GDP. Initially forecast to be 3.0%, the end of the year estimate was reduced to 2.7%.
Of course, I would be remiss to not acknowledge the developments of last weekend. After months of escalating tensions, Trump announced that U.S. forces captured Venezuelan President Nicolas Maduro and his wife in Caracas during a large-scale strike that began on January 2. Maduro and his wife were subsequently transported to New York to face charges of drug trafficking and narco-terrorism.
Trump indicated that the U.S. would run Venezuela (at least temporarily) and take control of its oil reserves. To date, there has been no pressure from the U.S. for Venezuelan opposition leader and Nobel Prize winner Maria Corina Machado to take over. Nor for her ally, Edmundo Gonzalez, who is widely thought to have won Venezuela’s 2024 presidential election and is currently in Spain. The situation remains fluid, and it is difficult to know what will happen next. Of course, this military action has prompted speculation we have provided the blueprint for China to seize Taiwan, and it may have ramifications for the efforts to end the war Russia is waging on Ukraine.
Venezuela holds the largest proven oil reserves in the world. However, after years of mismanagement, corruption and sanctions, exports have dropped from around three million barrels per day in the late 1990s to well under one million barrels per day today. This decline started under Hugo Chavez, who progressively nationalized the oil sector, pushing out foreign investors (principally U.S. oil majors). U.S. oil companies have the refineries to process Venezuelan oil and Trump has asserted that they will invest in Venezuela’s oil industry. But the investment needed is massive, with some saying $65 billion is required to maintain production and over $100 billion is needed to get production back to 2 million barrels a day. Notably, over 70% of Venezuelan oil exports go to China, making up 5% of China’s total imports.
Outside of oil, Venezuela is a small economy, so markets shrugged at the news, and if anything were positive over the idea energy prices would slide further with more U.S. influence over global oil reserves. The next shoe to drop will be the Supreme Court’s ruling on tariffs, which analysts thought might come as early as today. Expect the markets to react with less of a shrug over that decision and to also stay focused on earnings season, which starts in earnest next week.
Written by a human.