As the government shutdown crawls into its seventh day with no resolution in sight, data-dependent leaders are increasingly being forced to make do without the backstop of trusted government data.
That includes the Federal Reserve, which was deprived of a key jobs report from the U.S. Bureau of Labor Statistics (BLS) set for release on Oct. 3. Payroll estimates from private data providers exist, but they are no substitute for the data collection muscle of Uncle Sam.
If the congressional impasse stretches into next week, the Fed will also be without the BLS’s latest consumer price index data, a widely tracked measure of inflation.
Against that backdrop of suboptimal data sets, quasi-governmental consumer surveys take on added resonance. And from what Main Street has to say, things are looking bleak at both the checkout counter and in the job listings.
The September Survey of Consumer Expectations, produced by the Federal Reserve Bank of New York’s Center for Microeconomic Data, saw consumers reporting heightened inflation expectations, lower expected earnings growth, greater likelihoods of losing jobs, and a higher chance of a rise in overall unemployment.
Let’s start with the good news: Consumer inflation expectations held steady at the three-year-ahead horizon at 3%. But the one-year-ahead inflation projection jumped to 3.4% from 3.2% since the August survey, and the five-year-ahead inflation prediction rose to 3% from 2.9%.
In another bit of somewhat positive news, median home price growth expectations remained unchanged at 3% for the fourth consecutive month.
The labor market is another story.
The mean probability that the U.S. unemployment rate will be higher a year from now increased two percentage points to 41.1%. The mean perceived probability of losing one’s job over the next 12 months ticked up 0.4% to 14.9%, remaining above the trailing 12-month average of 14.1%.
The mean perceived probability of finding a new job if laid off rebounded from August’s record low of 44.9%. That metric gained 2.5% to reach a 47.4% reading, though it failed to offset August’s 5.8% decline and remains well below the trailing 12-month average of 51%.
Meanwhile, median one-year-ahead earnings growth expectations decreased by 0.1% to 2.4% in September. That is the lowest reading since April 2021.
The Fed cut the benchmark federal funds rate by 25 basis points in mid-September, judging that the deteriorating labor market was of more pressing concern than sticky inflation.
Prior to the government shutdown, the most recent BLS jobs report showed that U.S. employers added a lackluster 22,000 jobs in August and the unemployment rate edged 0.1% higher to 4.3%.
The latest personal consumption expenditures (PCE) index data, the Fed’s preferred inflation gauge, indicated that consumer prices rose 2.7% on a seasonally adjusted annual basis in August, which remains above the Fed’s 2% inflation target. The PCE inflation report is generated by the Bureau of Economic Analysis, which is currently closed for business.
With the Fed’s next monetary policy meeting 21 days away, investors overwhelmingly believe the central bank will continue to prioritize the employment side of its dual mandate. As of Tuesday afternoon, the CME FedWatch tool, which tracks fed funds rate futures contracts, showed 94.6% odds the Fed will execute another quarter-point rate cut later this month.
