Following a period of above-trend growth through the second and third quarters of 2025, economic momentum moderated during the fourth quarter of 2025 but remained resilient. Full year 2025 GDP was approximately 2.1% (as of the 3rd estimate). While official GDP data for Q1 has not yet been released, indicators suggest growth remained positive, albeit at a slower pace than last year’s highs. The Atlanta Fed’s GDPNow estimate for Q1 real GDP growth stands at 1.3% (as of April 7th), reflecting softer consumption and trade data later in the quarter. This deceleration is consistent with our expectation that growth would normalize after a strong 2025, rather than signal an abrupt deterioration in underlying economic conditions.
The labor market continues to be a closely watched—and very nuanced—component of the economic outlook. After showing signs of strain late last year, employment data improved modestly as Q1 progressed. In March, non-farm payrolls increased by 178,000, reversing February’s decline of -133,000, while the unemployment rate edged down to 4.3%. Although hiring remains well below the pace seen earlier in the cycle, unemployment remains below the long-term 5% level often associated with full employment. This “low-hire, low-fire” environment suggests firms are cautious but not retreating outright, and households remain broadly capable of supporting ongoing economic activity.
Inflation continues to run above the Federal Reserve’s long-term target, but data through February indicate that price pressures remain contained and largely stable. February Headline CPI rose 2.4% year over year, unchanged from January, while Core CPI (excluding food and energy) was 2.5%. Meanwhile, Headline PCE, the Federal Reserve’s preferred measure of inflation, was 2.8% year over year and 3.0% for Core PCE. These figures represent meaningful improvement from the inflation peak in 2022, though they remain above the Fed’s 2% objective. Importantly, these data points precede recent geopolitical developments that have driven higher energy prices, suggesting inflation readings may become more uneven in the months ahead. As a result, the path of policy easing from the Federal Reserve remains uncertain.
Against this backdrop, financial markets navigated the first quarter with notable resilience. Equity markets contended with shifting interest-rate expectations, geopolitical risks, and renewed volatility, yet underlying earnings growth and balance sheet strength provided support. Fixed income markets benefited from more stable inflation expectations, while diversified portfolios continued to demonstrate their value in managing crosscurrents between growth concerns and policy uncertainty. The environment has reinforced the importance of discipline and balance amid shorter-term headline risk.
Looking ahead, we anticipate economic growth could moderate further but remain at a sustainable pace through the remainder of 2026. Inflation has overtaken the labor market as the near-term economic risk due to geopolitical risk to the global energy market. Absent this disruption, we would have expected inflation to remain elevated relative to pre-pandemic norms without accelerating meaningfully. We will now be keeping a closer eye on inflation and the feed through to corporate profitability and consumer strength. Simultaneously, labor market softness bears close monitoring, but we do not expect it to derail expansion. Recession risk has increased due to the economic shock, but it remains low. We believe a return to the strong growth rates of 2023-2025 is unlikely.
Entering the second quarter, we continue to believe that maintaining well-diversified portfolios aligned with long-term objectives and risk tolerance is the most effective strategy for navigating the current economic environment. While we remain attentive to incoming data and are prepared to adjust positioning as conditions evolve, our focus remains on long-term outcomes rather than short-term economic noise.
This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.