The all-important sprint to finish the year begins

Trend watch

Barring a Thanksgiving miracle, we’re projecting that U.S. air passengers will be roughly flat for the full year, narrowly missing the 2025 record of 905.7 million by less than 0.5%. To put it in context, that’s like a single bad day as the average daily throughput is about 2.47 million passengers.

While the old saying is a “Christmas miracle,” the week of Thanksgiving is traditionally the busiest for air travel, with more than 31 million passengers expected to fly during the 10-day holiday travel window (from November 20 through November 30). 

Our take

U.S. economic activity remains uneven, with pockets of resilience offset by continued weakness in key interest-rate-sensitive sectors. Consumer activity has held up better than expected, highlighted by the stability of air travel demand along with solid retail sales. That’s especially true given higher gasoline prices and interest rates.

The rest of the year will be critical for both air travel and retail sales. Indeed, the upcoming Thanksgiving travel period includes its busiest week of the year, though the summer months are the busiest season. For the latter, the holiday season is a make-or-break period for most retailers.

Traditionally, Black Friday sales starting on the day after Thanksgiving were quite literally the week of the year when many retailers would finally turn a profit. That said, you’re not imagining things – so-called pre-Black Friday sales begin in the next week, pulling forward sales nearly a month.

We’re cautiously optimistic that consumers should navigate higher gasoline prices and overall inflation, leading to good holiday sales results. U.S. retailers expect holiday sales to grow 4.2% over 2025 and are projected to top a record $1 trillion, according to the National Retail Federation.

Elsewhere, business activity data continue to suggest a mixed economic backdrop. S&P Global’s manufacturing gauge extended its recent improvement, indicating that factory activity is gaining momentum after roughly three years of weakness. However, the services sector has ebbed, underscoring the uneven nature of growth across the economy. While manufacturing appears to be benefiting from improving demand and inventory dynamics, softer service-sector activity raises concerns that overall economic growth remains tepid.

One of the largest interest-rate-sensitive sectors is housing. Unfortunately, it’s also one of the economy’s weakest areas. New single-family housing activity continues to struggle as elevated borrowing costs and affordability challenges weigh on both builders and buyers. Demand conditions deteriorated further in September, with pending home sales posting a sharp decline. The drop in contract signings points to continued softness in existing home sales.

Conditions in the rental market have become more balanced. Rent growth has largely returned to its long-run trend after the extreme volatility experienced during and immediately following the pandemic. Even so, the annual pace of rent increases remains below its pre-COVID trend, reflecting an ongoing normalization process as additional multifamily supply comes online and demand moderates. While rents are no longer providing the outsized inflationary pressure seen in recent years, shelter costs continue to rise and remain an important component of the broader inflation picture.

Consumer sentiment remains weak despite a modest upward revision in October. The University of Michigan’s consumer sentiment index was revised to 48.0 from 46.3, but still sits at a five-month low, reflecting persistent concerns about household finances and the economic outlook. At the same time, consumers expect prices to rise more rapidly over both the next year and the next five to ten years, with inflation expectations reaching their highest levels since May. The combination of depressed confidence, heightened inflation expectations, and continued housing weakness suggests consumers remain cautious even as broader economic activity continues to expand.

Bottom Line

U.S. economic growth remains uneven, with resilient consumer spending and stable travel demand helping offset continued weakness in housing and other interest-rate-sensitive sectors. We remain cautiously optimistic that consumers will navigate higher gasoline prices and inflation, delivering a solid holiday shopping season.