The first full week of the year did its best to remind us that 2026 is not easing into anything quietly. We had regime change in Venezuela, a backlog of delayed economic data released all at once, housing policy announcements and enough geopolitical headlines to make a macro tourist dizzy. And yet, beneath the noise, the signal remains surprisingly steady.

Executive Summary

• U.S. growth is holding up better than expected, with Q4 tracking closer to 2%+ and 2026 growth revised higher on sustained AI investment and looser financial conditions.
• The labor market is cooling, not cracking: hiring is sluggish, layoffs remain low and wage growth continues to decelerate without becoming disinflationary.
• Consumers are bifurcated but resilient, with improving sentiment at the margin and spending increasingly driven by higher-income households.
• Housing is bottoming, not booming: falling mortgage rates help, but excess supply caps near-term upside.
• Venezuela is geopolitically loud but economically quiet: dramatic headlines, muted global oil and U.S. macro impact.
• Policy volatility remains high, but little of it meaningfully alters the baseline outlook.

Growth: Better Than Feared, Not as Good as It Looks

With shutdown-delayed data finally released, Oxford Economics now estimates Q4 GDP growth is tracking closer to (and potentially above) 2% annualized, stronger than the pace assumed in December’s baseline forecast. The upside surprise is driven by resilient consumption, sustained AI-related capital investment and a temporary boost from net exports following a sharp narrowing in the October trade deficit.

At the same time, productivity growth has stepped up meaningfully. Output per hour rose sharply in Q3 and prior quarters were revised higher, allowing economic growth to persist despite slower job creation.

• Key takeaway: The economy is expanding in a way that feels unfamiliar — less hiring, more output — but that does not make it fragile.

Labor Markets: The Jobless Expansion Everyone’s Waiting For

Payroll growth softened in December, revisions moved lower and hiring demand remains weak. Yet unemployment edged down to 4.4%, layoffs remain subdued and the prime-age employment-to-population ratio continues to signal stability.

As we have mentioned previously, we appear stuck in a low-hire, low-fire equilibrium. Firms are not aggressively adding workers, but they also are not cutting. Wage growth has picked up modestly on a month-to-month basis, but job turnover data suggest it will not become inflationary, a crucial point for a Federal Reserve eager to stay patient.

The risk is not recession; it is a prolonged jobless expansion that deepens the divide between asset-holders and wage-earners.

• Key takeaway: The labor market refuses to break — but it is also refusing to re-accelerate.

Consumers: Improving Mood, Uneven Wallets

The University of Michigan’s consumer sentiment index improved for a second consecutive month in January, driven by better assessments of current conditions. Year-ahead inflation expectations remained at 4.2%, their lowest level since before tariffs were implemented, suggesting inflation psychology is stabilizing.

Despite this improvement, consumers remain significantly more pessimistic than a year ago, particularly regarding big-ticket purchases. Consumer spending resilience continues to be driven disproportionately by higher-income households benefiting from rising financial wealth, while lower-income households remain constrained.

• Key takeaway: Sentiment is gloomy, spending is resilient and the gap between the two is explained by who is actually doing the spending.

Housing: Finding the Floor, Not the Ceiling

October housing starts fell to 1.246 million, a five-year low, driven entirely by multifamily volatility, while single-family starts and permits stabilized. Falling mortgage rates and a modest pickup in homebuilder confidence suggest housing activity is close to bottoming.

Policy actions aimed at lowering mortgage spreads may push borrowing costs lower, but affordability remains stretched and inventories elevated. As a result, residential investment is expected to lag broader investment growth in 2026.

• Key takeaway: Housing is bottoming out, not gearing up. Stabilization is the story, not resurgence.

Venezuela: A Geopolitical Earthquake with a Macro Thud

The U.S. military intervention in Venezuela represents a significant geopolitical shock but has had minimal impact on global oil prices or the U.S. economic outlook. At one time, Venezuela was a major oil producer and today, still claims to have the largest reserves in the world. However, current production has dwindled to less than one million barrels per day.  When compared to total global production of 103 million barrels per day, oil production in Venezuela could rise or fall meaningfully over time, but even large percentage swings translate into small changes in global supply.

With global oil markets well supplied and U.S. shale acting as a buffer, the impact on inflation, growth and Fed policy remains modest. Venezuela matters geopolitically; however, economically it appears to be a footnote unless paired with broader shocks elsewhere.

• Key takeaway: Big headlines, small multipliers.

Policy and Markets: Another Year of Whiplash

From defense spending rhetoric to housing interventions to looming Supreme Court rulings on tariffs, policy volatility is back with enthusiasm. Yet most of it does not materially change the baseline outlook.

Markets seem to agree. Equity prices have shrugged, financial conditions have eased and the dominant macro forces — productivity, AI investment and consumer balance sheets — remain intact.

• Key takeaway: Policy noise is loud; but macro fundamentals are more impactful.

Bringing It All Together

This week’s research reinforces a theme we have discussed in past writings and expect to revisit again in 2026: the economy is stronger than it feels, less balanced than it looks and more resilient than the headlines suggest. Growth continues, inflation is cooling, the Fed has the data needed to stay patient and risks seem to cluster more around distributional outcomes than cyclical collapse. Or, put differently: the data may be messy, but the message is surprisingly consistent and no, Venezuela did not change that.

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