With the US government dark, alternate sources show a sluggish September for jobs

The ongoing U.S. government shutdown has delayed official economic data, prompting increased reliance on alternative indicators which collectively suggest a stagnating labor market in September. While the Chicago Fed estimated a stable 4.3% jobless rate, data from ADP and Intuit pointed to declines in private payrolls and small business employment, respectively, with hiring plans at their lowest since 2009 according to Challenger, Gray & Christmas. This broad indication of labor market sluggishness is expected to support another Federal Reserve interest rate cut, with the shutdown also threatening to postpone crucial inflation and spending data, further complicating policy and investment decisions.

Analysis

The ongoing U.S. government shutdown has created an information vacuum by delaying the official September jobs report, forcing the Federal Reserve and market participants to rely on a mosaic of alternative data sources that collectively point to a stagnating labor market. While the Chicago Fed's real-time estimate indicates a stable headline unemployment rate of 4.3%, more granular data suggests underlying weakness. Specifically, ADP's report showed a 32,000 decline in private payrolls, and data from Intuit's QuickBooks platform revealed a 48,000 job loss among small businesses. Further evidence of a slowdown comes from Challenger, Gray & Christmas, which reported that year-to-date hiring plans have fallen to their lowest level since 2009. This confluence of sluggish hiring and payroll declines, despite a stable top-line unemployment figure, strongly supports the case for another quarter-percentage-point interest rate cut by the Federal Reserve at its upcoming meeting. The situation is complicated by a puzzle over whether the slowdown is caused by weakening demand or by labor supply constraints, as highlighted by the NFIB survey where businesses report difficulty finding qualified applicants. The continued shutdown threatens to delay further critical data, amplifying uncertainty and downside risk for the economy.

Key Decisions for Investors

• Investors should increase their weighting on the probability of a 25-basis-point Federal Reserve rate cut, as the mosaic of alternative data points to a stagnating labor market that likely meets the criteria for further policy easing.
• With official statistics unavailable, closely monitor high-frequency private data from sources like ADP and Intuit, as these non-official releases will temporarily serve as primary drivers for market sentiment and short-term volatility.
• Consider adopting a more defensive posture, as indicators of stagnating activity and the lowest hiring intentions since 2009 present a significant headwind to economic growth that a rate cut may not fully offset.
• Pay close attention to any qualitative data on labor supply constraints, as the distinction between a slowdown from weak demand versus a tight labor supply has significantly different implications for future wage inflation and corporate margins.