Written by Steve Andrews
U.S. Economic Overview
The U.S. economy has shown notable resilience despite the recent federal government shutdown, ongoing tariff uncertainty, and shifting Federal Reserve policy. Consumer spending and corporate earnings remain strong, inflation has moderated, and markets continue to experience bouts of volatility driven by policy and data uncertainty. The shutdown primarily disrupted federal economic data releases and threatened to weaken growth – particularly through reduced spending by federal workers, contractors, and SNAP recipients – had it extended into the holidays. These concerns briefly weighed on stocks in early November, but optimism returned as Q3 corporate earnings pushed major indexes to new highs by mid-month. Nearly 85% of S&P 500 companies reporting so far have exceeded expectations, and earnings growth is projected to reach at least 12% for the quarter, with the tech sector potentially above 20%. If achieved, this would be the fourth consecutive quarter of double-digit earnings gains.
Impact of the Federal Shutdown on Economic Data
The shutdown paused the release of several major federal economic indicators. The October Employment Report, scheduled for November 7, was among the delays, along with updates on Retail Sales, Housing Starts, Industrial Production, weekly jobless claims, and the October CPI and PPI reports. While the absence of government data makes near-term forecasting more difficult, private-sector sources – including ADP, the Institute for Supply Management (ISM), and S&P Global – continue to provide timely insights.
Labor Market Conditions
ADP reported that private payrolls rose by 42,000 in October. Meanwhile, the Challenger, Gray & Christmas report showed 152,000 announced layoffs – primarily in warehousing and high tech – but also noted a sharp increase in planned hiring. Overall, the labor market continues moving in the “slow lane” but has not yet become a drag on growth. Employment gains have flattened, and private payroll growth remains modest but steady, while unemployment claims continue to sit near historically low levels.Consumer Spending and Sentiment
Wages continue to grow faster than inflation, and combined with record household net worth, they are sustaining overall consumer spending – the primary engine of U.S. economic growth. Weekly retail sales remain strong, rising 5.7% from a year ago according to the mid-month Johnson Redbook survey. However, this strength masks the uneven nature of today’s K-shaped economy, where higher-income households continue to spend freely while lower-income consumers show signs of strain from elevated prices, depleted savings, and rising credit balances. This divergence helps explain why spending remains solid even as broad sentiment readings remain weak. Confidence may improve now that the shutdown has ended, but the distribution of spending power remains far from uniform.
Federal Reserve Policy and Interest Rate Outlook
Expectations for a December Federal Reserve rate cut have dropped sharply. Fed officials’ recent comments have lowered the probability of a cut from about 95% a few weeks ago to just over 50% now. Atlanta Fed President Raphael Bostic has said he prefers to wait for “clear evidence that inflation is again moving meaningfully toward” the Fed’s 2.0% target, even though he views current monetary policy as “restrictive.” His stance aligns with Fed Chair Jerome Powell’s October 29 comments emphasizing that another rate reduction “is not a foregone conclusion.”
Bond Market Reaction
The bond market appears to support the Fed’s cautious approach. The yield on the 10-year Treasury note has climbed from 3.98% before the October rate cut to 4.10% at mid-month. If yields continue rising toward 4.25%, the likelihood of another near-term rate cut would diminish until long-term rates start to retreat again.
Inflation Trends
Inflation remains closer to 3.0% than the Fed’s 2.0% goal. Core goods prices – especially those affected by tariffs – rose 1.5% year over year in September, the largest increase since 2012 excluding the 2021–2022 spike, though these pressures are expected to ease soon. Powell has noted that inflation is near the Fed’s target when tariff-affected categories are excluded. Meanwhile, shelter costs – previously a major factor keeping inflation elevated – continue to cool. Shelter increased just 0.1% last month, the smallest rise since 2021, which should help ease headline inflation in the coming months.
Cryptocurrency Market Update
Bitcoin recently fell below $100,000, down more than 25% from its October 6 peak of $123,857. Cryptocurrency markets remain highly volatile, and part of the decline may stem from last summer’s Genius Act, which established Stablecoin backed by U.S. dollars and Treasuries. Stablecoin is increasingly viewed as the digital asset most likely to support real-world financial transactions, which may be drawing attention away from Bitcoin.
Market Volatility and Broader Risks
Periodic pullbacks in U.S. equities continue to prompt predictions of bubbles in tech, housing, or the broader market. While manufacturing, housing, and more recently job gains remain soft – and stocks have edged slightly off record highs – these movements reflect the uneven path typical of market cycles. One area to watch is the status of Affordable Care Act subsidy extensions. ACA premiums may rise at year-end if subsidies expire. Congress is expected to pursue a three-year extension in December, but failure to pass it could trigger another shutdown at the end of January.
Looking Ahead: Data Releases and Economic Momentum
With the federal government reopened, a wave of delayed economic data should soon be released. The Bureau of Labor Statistics is expected to publish a full schedule, including the October nonfarm payrolls report and the CPI and PPI inflation data. While informative, these indicators are backward-looking. Markets remain focused on the next 12–24 months and continue to show broad optimism. In the meantime, consumer spending should continue to support economic growth, bolstered by tax-cut extensions and ongoing regulatory relief that will benefit businesses of all sizes.
