Baker Market Update 2025-11-14

The government shutdown ended yesterday on its 43rd day, marking the longest shutdown in U.S. history. However, just how quickly full government services and operations will resume is still unclear. We do know the deal signed this week extends funding through January 30, 2026. It also means the flow of data on the U.S. economy can now resume.

The absence of data for more than six weeks has left investors, policymakers, and individuals largely in the dark about the state of the economy, especially the condition of the labor market, the trajectory of inflation, and the pace of consumer spending. Unfortunately, the resumption of normal government activity is not likely to fill in all the missing pieces, some data gaps may be permanent.

The White House has said that employment and Consumer Price Index (CPI) reports covering the month of October might never be released. The "household survey," from which we get the official unemployment rate, data on labor force participation, as well as information on hours worked and earnings, was not conducted in October for the first time since 1948. Unlike the "establishment survey" which determines the monthly change in nonfarm payroll jobs, subsequent household surveys don't ask about prior months, which means we may never know the figures for October.

Economists are also pessimistic about certain inflation data. The October CPI report, originally scheduled to be released yesterday, may never be released either. The Bureau of Labor Statistics was closed for the entirety of October, meaning no price quotes were collected during the month. October CPI data is also used to inform some price index calculations that affect other months so November, December, and even April CPI inflation data could be distorted.

This lack of data will undoubtedly complicate the Fed’s December interest rate decision and may compel the central bank to pause rate cuts until employment and other key data become more reliable. Chairman Powell told reporters last month following the Fed’s last policy meeting, "What do you do if you're driving in the fog? You slow down." Futures traders are heeding this warning and have already backed off their bets on a December rate cut. As of this morning, markets are split 54%/46% over whether the Fed will cut its policy rate again this year, with another cut barely edging out the bets for no cut.

However, Chairman Powell has also made clear that the labor-market side of the central bank's dual mandate has been weighing more heavily on recent policy decisions than inflation and the data the Fed does have on employment is not encouraging. Based on the information that is available, Goldman Sachs estimates nonfarm payrolls declined by 50,000 in October, which would be only the second monthly drop since December 2020, and the biggest decline in more than five years. Outplacement firm Challenger, Gray & Christmas also showed planned layoffs soared in October to more than 150,000, the highest reading for that month since 2003.

Next week should bring more clarity on when and if missed data will be released as the Bureau of Labor Statistics and other government agencies return to work. We will also get minutes from last month’s key FOMC meeting, which should shed more light on the growing dissent among Fed officials as they try to navigate a path forward. Have a great weekend!