Desert Song: Relying on Alt Data for Economic Pulse

The government shutdown hit its 40th day over the weekend, yet only recently has it had some impact on the stock market (it's tough to isolate factors contributing to the latest market "yips"). But given that third quarter earnings season has been much better than expected, one could surmise that the shutdown is a contributor to increasing angst.

We all remain in the great government data desert—tumbleweeds where Bureau of Labor Statistics (BLS) jobs and inflation reports should be—continuing to piece together the economy from private sector thermometers and a few helpful weathervanes. While the shutdown continues to stall many official economic data releases, investors still need a map, so we will triangulate the messages from the latest private readings.
Let's start with purchasing managers' indexes (PMIs). As shown below, the ISM Manufacturing PMI slipped to 48.7 in October, remaining in contraction (defined as below 50). On the other hand, services—still the heavyweight of the U.S. economy—looked healthier. The ISM Services PMI rebounded to 52.4 in October.

In addition to its monthly readings on job growth, ADP is now offering weekly releases—much needed in light of no BLS-issued monthly jobs reports or weekly unemployment claims at the national level. ADP's National Employment Report showed private-sector payrolls up a modest 42k in October. Although a reversal from the prior two months of negative readings, shown below, it should still be thought of as "still hiring, but pass the decaf."

1. Growth: Services momentum has reaccelerated, while manufacturing remains soft. That keeps the composite feel of the economy in "slow expansion," not recession. If this were a road trip, the service side just merged back into the right lane, while factories are still at the rest stop checking the map.
2. Inflation mix: Manufacturing prices paid cooled from September, but stayed expansionary, while services prices were uncomfortably hot. That split—goods disinflation vs. sticky services inflation—never fully went away and may complicate any "mission accomplished" narrative on inflation.
3. Labor demand: ADP says hiring continued, but barely; Revelio suggests essentially flat employment and fewer postings; Challenger shows companies actively sharpening the cost pencil via layoff plans. Put together, labor demand is normalizing from too hot to tepid, with growing pockets of outright weakness. In terms of Federal Reserve policy, this may be a comfortable enough mix—cooler, not frozen— to keep monetary policy on hold near-term, even if it's arrived via an unhelpful data blackout. In fact, the Fed may not receive official data for October and November prior to the December Federal Open Market Committee (FOMC) meeting, also arguing for a considered pause.
4. Confidence and capex: The soft manufacturing employment index, persistent contraction in new orders, and the run-up in layoff announcements argue that managers remain in "optimize" mode—sweating utilization and margins rather than green-lighting big new rounds of hiring. Services companies did report better activity and orders, which should cushion growth; but the sub-50 employment reading hints that many are meeting demand with productivity and scheduling tweaks, not headcount.

The lack of federal data means we also have an impaired view of the U.S. consumer—at least as it pertains to income growth, savings rates, and spending. In the meantime, sentiment data continue to point toward a mostly anxious and perhaps even depressed consumer base. As shown below, the Consumer Sentiment Index from the University of Michigan (UMich) fell in November to its lowest since June 2022. Other than that month, the index is at its lowest in history. The expectations component, which tracks how consumers feel about the economic outlook, also fell and is nearing a cycle low.

So, what's the punchline in this data desert standup routine? Even without the usual government stats, the private gauges of activity rhyme: overall growth is lukewarm, the goods side of the economy is slogging, services have a decent pulse, labor demand is cooler, consumer sentiment is dire, and prices heat is now concentrated in services.

It's an economy that looks less like a cliff and more like a long, slightly uphill treadmill—hard work, limited scenery, and the occasional splash of energy drink from better services data. When official releases return—or better said, when official releases have "clean" data once again—it will not surprise us if they broadly confirm this "slowish expansion with softer labor demand and sticky services prices" script. Until then, we'll keep following the private breadcrumbs—and yes, we brought extra water.