The United States has entered a brief golden age of macroeconomic data releases. This predicament is all due to the federal shutdown that began at the beginning of the month. This shutdown has meant enormous loss of critical federal information, none more important than our latest understanding of the jobs market. As the nation continues to wait for more information, it’s unclear when this data drought will end.
Yet, as I write this in mid-October, the Federal Reserve is preparing to announce its second straight interest rate cut. This is all occurring despite much difficulty caused by the closure. To date, economic activity in the US has proven surprisingly resilient despite ongoing uncertainty surrounding trade developments. The PMI numbers are further proof of this continued strength — signaling that the economy is on a solid and moderate incline.
As of this writing, the GDPNow estimate is a stunningly-high 3.9% annualized. This last figure emphasizes that there’s more goings-on beneath the surface of the wobbly economy. There are other indications that the job market is beginning to cool. Indeed, in September, private sector employment shrunk by 32,000 jobs, indicating that changes are on the horizon for this economy’s labor market.
Even before the shutdown, financial market professionals had called an October cut a “done deal.” Futures markets have fully priced in a rate cut since the release of the dismal July payrolls report at the beginning of August. Unfortunately, this expectation continues in the face of a debilitating and frankly embarrassing uncertainty over when data will be available.
Federal Reserve officials have indicated that they can proceed with rate cuts without having a comprehensive view of the US economy. Consequently, they’ve had to use second or even third tier data to measure what’s happening economically in this unprecedented time of limited information. Right now, all signs still point to this uncertainty not being enough to stop plans for an October rate cut.