If you’re in the business of navigating a rate-cutting cycle that’s based on weak labor market data, it can get pretty messy when the government shuts down and the data backing that cycle is paused. 

That’s the situation the Fed is in and it’s not ideal. In today’s newsletter, we unpack where this situation leaves us and if there are any tea leaves still kicking around that can point to where the US economy is headed.

The Fed’s driving blind

Oh, you thought economic data’s been difficult enough to parse since Liberation Day and the greatest tariff hike in history?

How about adding a government shutdown into the mix?

That seems to be where we’ve landed. The last US government shutdown happened in 2018 and was the longest one on record. Most, however, last less than a week:

Setting aside some of the implications of the shutdown, the one most painful to an economic data nerd like myself is the lack of forthcoming information.

As noted by Bloomberg Economist Anna Wong, there’s quite a bit of data due in the next couple of weeks that’s at risk of delay:

The most unfortunate data point at risk this week is the jobs report. Since so much of the outlook for monetary policy hangs on labor market data right now, this data point is extremely essential for investors. 

Whether we will get it or not will depend on the length of the shutdown as explained below:

This labor data uncertainty has another vector to it as well. 

After last month’s horrendous NFP print, President Trump fired the head of the BLS and then quickly nominated E.J. Antoni to replace her. However, Antoni’s nomination has now been withdrawn, pushing the BLS further into flux. 

With no labor data from the government, our only star in the sky to follow is private payrolls data such as the ADP.

ADP Payrolls came in at -32K, sharply missing forecasts of +50K:

So, with the only labor market data we’re likely to get for the foreseeable, it’s clear that the labor market is still not great and the continuation of the rate-cutting cycle is a lock despite the missing NFP data. 

With the October FOMC meeting at 99% odds of a rate cut and a Fed that is committed to supporting the labor market alongside decent growth, risk assets are likely to head higher from here on out.

— Felix Jauvin

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