Operating with Limited Data | Tom Barkin | Inflation | Employment

A Richmond Fed official said the Bank has been operating with limited government data for nearly seven weeks and is leaning on private-sector indicators and an extensive outreach program (about 4,000 contacts) to monitor the economy. Recent official data show healthy demand—real consumer spending +2.7% year-over-year and retail sales +0.6% month‑over‑month—with AI-driven business investment and solid card spending, but activity is highly uneven across sectors and the D.C. area has been hit by the government shutdown; labor market readings are soft (three‑month average job growth ~29,000; ADP 42,000 in October) even as unemployment remained low at 4.3% through August and labor‑force growth is slowing (BLS projects 0.3% annually vs 0.8% prior). Inflation remains above the Fed’s 2% target (CPI headline and core ~3% year‑over‑year through September, implying PCE roughly a percentage point above target) but is being tempered by easing shelter, low oil, consumer pushback and productivity gains from labor‑saving investments. The speaker argued these opposing pressures create a mixed mandate picture and signaled a cautious policy stance—throttling until visibility improves—without offering guidance for the next meeting.

Analysis

A Richmond Fed official said the bank has operated with limited government data for nearly seven weeks and is relying on private-sector indicators and outreach to roughly 4,000 contacts to monitor conditions. Official data through August show real consumer spending up 2.7% year‑over‑year and retail sales +0.6% month‑over‑month, with AI‑driven business investment and third‑quarter earnings supporting demand, but activity is highly uneven across sectors (strong: data centers, energy, pharma, high‑income exposure; weak: farmers, realtors, tariff‑hit manufacturers, lower‑income consumer sectors).

Labor market metrics are soft: three‑month average job growth is about 29,000, ADP reported 42,000 jobs in October, while unemployment remained low at 4.3% through August; recent layoffs at Amazon, Verizon and Target and a rapid slowdown in labor‑force growth (BLS projecting 0.3% annual growth versus 0.8% prior) complicate calibration of unemployment risk.

Inflation remains above the Fed’s 2% goal with headline and core CPI ~3% through September (implying PCE roughly a percentage point above target); shelter and oil are easing but goods and some non‑housing services remain elevated, while consumer pushback and productivity gains act as moderating forces. The speaker framed policy as cautious—"throttle back until visibility improves"—and offered no near‑term meeting guidance, signaling potential for a pause or a data‑dependent stance that leaves markets sensitive to incoming high‑frequency indicators.

Key Decisions for Investors

• Favor exposure to sectors the Fed’s outreach identifies as hot—AI beneficiaries, data‑center infrastructure, energy and select technology names—that are likely to benefit from robust capex and high‑income consumer demand
• Trim or avoid cyclical and consumer‑facing exposures cited as struggling—agriculture, residential real‑estate/realtors, tariff‑impacted manufacturers and lower‑income discretionary retailers—and be cautious on companies with high DC‑government dependency given the shutdown impact
• Use incoming high‑frequency indicators (card spending, initial claims, ADP, CPI/PCE prints and Richmond Fed outreach) as explicit triggers to adjust risk, and watch layoffs and labor‑force trends for signs of deeper weakness
• Maintain liquidity and consider tactical inflation hedges or sector hedges given CPI/PCE remain above target and the Fed’s stated data‑dependent, cautious stance makes large directional duration bets premature