Cracks in the Rally

The Atlanta Fed's GDPNow model—a real-time estimate of economic growth that updates as new data becomes available—projects the U.S. economy grew at a 4.0% annual rate during the third quarter of 2025. This "nowcast" (a current estimate rather than a prediction) increased from 3.9% on October 27 to 4.0% on November 3, where it remained unchanged through November 6. The model uses mathematical analysis of 13 economic components without any subjective adjustments to mirror how the Bureau of Economic Analysis calculates GDP (Gross Domestic Product—the total value of all goods and services produced in the economy).

The Chicago Fed Labor Market Indicators combine real-time private sector data with official government statistics to forecast labor market conditions ahead of the Bureau of Labor Statistics (BLS) employment reports. For September 2025, the Layoffs and Other Separations Rate (the percentage of previously employed workers who lost their jobs through layoffs, quits, or discharges) remained steady at 2.09%, unchanged from August. The Hiring Rate for Unemployed Workers (the percentage of jobless workers who found employment) increased slightly to 45.61%, up from 45.49% in August. The Real-Time Unemployment Rate Forecast—which predicts the official BLS unemployment rate before it's released—held steady at 4.32%, matching August's actual rate. These indicators suggest stable labor market conditions with modest improvement in job-finding success for unemployed workers heading into fall 2025.

The Cleveland Fed's inflation nowcast (a real-time estimate before official data is released) projects October 2025 Consumer Price Index (CPI)—which tracks how much everyday goods and services cost—at 2.96% year-over-year, up from September's 2.79%. Core CPI (which removes volatile food and energy prices to reveal underlying inflation trends) is estimated at 2.99% annually. The monthly CPI increase moderated to 0.18% from September's 0.27%, suggesting some cooling in price pressures. However, the fourth-quarter outlook shows inflation accelerating to 3.25%, well above the Federal Reserve's (the central bank that manages interest rates and controls inflation) 2% target. This uptick signals persistent pricing pressures that could influence the Fed's interest rate decisions once normal operations resume after the government closure.

The ISM Manufacturing PMI (Purchasing Managers' Index—a survey measuring whether factory activity is growing or shrinking) fell to 48.7 in October, marking the eighth straight month of contraction. A reading below 50 signals declining factory activity, while above 50 indicates growth. Production dropped significantly to 48.2, while new orders improved slightly to 49.4 but remained in contraction territory. Input prices eased to 58.0, suggesting manufacturers are paying less for raw materials than the prior month. Survey respondents cited ongoing tariff uncertainty and weak demand as major headwinds, though the index still indicates overall economic expansion since it remains above the 42.3 recession threshold.

The Redbook Retail Sales Index—a weekly measure of how much Americans are spending at large retail stores—showed sales growing 5.7% compared to the same week last year, up from 5.2% the previous week. This index tracks approximately 9,000 major U.S. general merchandise retailers and represents over 80% of official government retail sales data. The acceleration suggests consumer spending (which drives about 70% of the U.S. economy) remains strong despite higher interest rates. Same-store sales, which only count stores open for at least 12 months, indicate established retailers are attracting more customer dollars rather than just opening new locations.

Private employers added 42,000 jobs in October—the first monthly gain since July—according to ADP (a payroll processing company tracking over 26 million U.S. workers). This modest increase follows two months of job losses and beats analyst expectations. However, hiring remains concentrated in large companies with 500+ employees, which added 73,000 positions, while small and medium-sized businesses shed 31,000 jobs combined. Pay growth stayed flat at 4.5% year-over-year for job-stayers (workers keeping their current positions) and 6.7% for job-changers (workers switching employers). The ADP report provides critical labor market insight during the government shutdown that has delayed official Bureau of Labor Statistics employment data.

The ISM Services PMI (Purchasing Managers' Index—a survey measuring whether the service sector is growing or shrinking) jumped to 52.4 in October, up from 50.0 in September and beating economist forecasts. Any reading above 50 signals expansion. Business activity rebounded strongly to 54.3, while new orders surged to 56.2—the highest level since October 2024. However, employment remained below 50 for the fifth straight month at 48.2, indicating companies continue reducing headcount despite stronger demand. The prices paid index hit 70.0, a three-year high, showing service businesses face persistent cost pressures from tariffs and supply chain challenges.

The S&P Global US Composite PMI (a measure combining manufacturing and services business activity) rose to 54.8 in October, up from 53.9 in September—the highest reading since July. A reading above 50 signals expansion. Both sectors grew: services activity jumped to 55.2 while manufacturing improved to 52.2. New business orders hit their strongest increase of 2025. However, export sales declined in both sectors, and business confidence fell to near three-year lows as companies worry about tariff policies affecting future demand. Prices charged for goods and services rose at the slowest pace since April.

U.S. employers announced 153,074 job cuts in October 2025, marking the highest level for the month in 22 years and representing a 175% increase from October 2024. This brings year-to-date layoff announcements to 1.1 million, the most since the pandemic-era 2020. The warehousing sector led with 47,878 cuts, while technology companies announced 33,281 reductions as firms integrate artificial intelligence (AI)—technology that automates tasks previously done by humans. Cost-cutting pressures and weaker consumer spending are driving these decisions. Meanwhile, companies announced only 488,077 planned hires this year, down 35% from 2024 and the lowest since 2011, signaling employers are both cutting staff and avoiding new hiring.

The University of Michigan Consumer Sentiment Index (a measure of how confident Americans feel about the economy) plummeted to 50.3 in November—the lowest reading since June 2022 and approaching record lows. The Current Conditions Index, which measures how people feel about the economy right now, hit a historic low of 52.3 dating back to 1951. The Index of Consumer Expectations fell to 49.0, reflecting deep pessimism about the future. According to survey director Joanne Hsu, the ongoing federal government shutdown is weighing heavily on consumer confidence, with declines widespread across all age groups, income levels, and political affiliations. Short-term inflation expectations (what people think prices will do over the next year) ticked up slightly to 4.7%, while long-term expectations declined to 3.6%.