The Macro Outlook: The US Data Challenge and the Case for a Risk Management Cut
The key events shaping the w/c 1 December 2025: Fed Chair Powell speech, ISM PMIs, Global S&P PMIs, catch-up US data: personal spending, income & PCE inflation for Sep.
The Recap from Last Week
At its meeting next week, the Fed faces the challenge of assessing a still incomplete set of data while disentangling the shutdown’s noise from the underlying signal of economic activity. While the end of the government shutdown suggests a rebound in activity is expected, the underlying narrative from last week’s US data was negative: sluggish activity, pockets of inflation, weakening sentiment, and continued cooling in the labor market. For the Fed, this confluence of distorted data and negative underlying signals likely builds the case for another risk management cut. Market pricing is now clearly reflecting an increased probability of a cut next week.
Surveys & Data – Sluggish Activity
The Fed’s Beige Book provided a broad backdrop of sluggish activity over the last six weeks. The report noted that most Fed districts had recorded little change in economic activity since the last report (reported before the Oct FOMC meeting). Overall retail spending had declined further, reflecting some cautious discretionary spending. Some districts noted a negative impact on consumers from the government shutdown, and community organizations saw increased demand for food assistance due to disrupted benefits during the shutdown. Furthermore, the catch-up retail sales report for Sep showed nominal retail sales growth had already slowed leading into the government shutdown, with real retail sales falling in the month.
The Beige Book reported some optimism among manufacturers in the outlook. However, this optimism was countered by the two regional activity surveys for Chicago and Dallas, which showed manufacturing activity had slipped further into contraction in Nov. The Beige Book also reported that “revenues in the nonfinancial services sector were mostly flat to down” – a finding that contrasts with the more recent services PMI reports.
Input Price Inflation Persisted
The absence of official government inflation data leading up to the next Fed meeting has complicated the assessment of the dual mandate risks. Nevertheless, the Beige Book highlighted widespread rising input prices affecting both retail and manufacturing firms. While some of these costs were tariff-related, firms also cited rising prices for insurance, utilities, technology, and healthcare. These inflationary impulses seemed to be countered by a lack of firms’ pricing power. Although firms expect “upward cost pressures to persist,” plans to raise prices in the near-term were mixed. Critically, “margin compression” was noted multiple times, indicating that the extent of pass-through of these higher input costs was limited by competitive pressures, demand, and client pushback.
Sentiment Weakened
The sluggish activity and cautious outlook of firms in the Beige Book was mirrored by the Conference Board Consumer Confidence survey for Nov. The headline measures of confidence all fell in Nov, with the report reflecting ongoing consumer concerns over inflation, tariffs, and politics, with an increase in mentions of the government shutdown. Since the survey cut-off was just days after the shutdown ended, some rebound in sentiment is possible in the Dec report.
Aside from the temporary nature of the shutdown concern, there were enduring themes leading to weaker sentiment in Nov. The report highlighted weakening labor market conditions (with another fall in the key labor market differential), weakening expectations in the outlook for the labor market and household income, and enduring concerns related to prices, inflation, and tariffs in the write-in responses.
Weakening Labor Market Conditions
For the Fed, one of the more important insights concerns weakening labor market conditions. At this stage, this factor is likely to influence the Fed’s decision calculus regarding another risk management cut to a greater degree than the persistence of inflation.
The Beige Book clearly highlighted that employment had declined, albeit slightly, during the inter-meeting period. The labor market dynamic still seemed little changed from the recent low/cautious hiring, but low firing environment, despite the recent increase in layoff announcements. Firms have adapted to the more sluggish and uncertain conditions by adjusting hours worked and managing headcount via hiring freezes, attrition, and replacement-only appointments.
This low-hiring/low-firing dynamic is also still reflected in the most recent initial and continuing claims data, though the latter remains distorted by the government shutdown. Initial claims have continued to ease, including a notable slowdown in initial claims from Federal government employees. At the same time, continuing claims have remained elevated, near cycle highs, keeping the labor market susceptible to a negative shock. The latest week of data for continuing claims (wk ending 15 Nov) still reflects the government shutdown and includes a notable number of furloughed Federal workers, which should begin to revert after next week’s report.
Outside of the US
The inaugural Aus monthly CPI for Oct came in higher than expected – and continued to reinforce the RBA’s on-hold status. Headline CPI increased by +3.9% in Oct, up from +3.6%, while the trimmed mean inflation rate increased by +3.3% in Oct, also up from +3.2% in Sept.
The Tokyo CPI remained firm for Nov (a leading indicator for the National CPI in Nov), while retail spending growth and industrial production also increased.
The RBNZ cut rates by 25bps as expected. The decision highlighted that a further cut would help support an enduring recovery, underpin consumer and business confidence, and still meet the inflation goal. The outgoing head of the RBNZ noted that there was now a “high hurdle” for further rate cuts (source: Bloomberg)
Outlook for the week ahead: Fed Chair Powell speech, ISM PMIs, Global S&P PMIs, catch-up US data: personal spending, income & PCE inflation for Sep.
The week ahead will continue to focus on the catch-up of US data. One of the key reports will be the US PCE inflation data for Sep as a part of the personal spending and income report. While a lagging report, its importance is heightened because consistent inflation data has largely been absent from the broader economic narrative over the last six weeks. Amid the focus on weakening activity and a cooling labor market, the inflation side of the dual mandate has felt like a missing piece of the assessment. Other US catch-up reports for Sep will include factory orders and import/export prices.
This would usually have been the week for official US jobs data; however, the updated Employment Situation data is still several weeks away. This week, we will instead receive the monthly ADP as well as the Challenger Job Cut Announcements for Nov. Other US reports that will be in focus this week will be the ISM surveys for Nov.
Key factors & events to watch this week:
US Fed Chair “brief remarks” within the blackout period
- There are several speeches noted in the official calendar despite this being the blackout period ahead of the Fed meeting next week – see the official Fed calendar.
- Fed Chair Powell is expected to give “brief remarks” and take part in a panel discussion. It’s unlikely he’ll cover the economic outlook given the blackout conditions.
- Vice Chair (Supervision), Bowman, will also give testimony this week.
US catch-up data and partial Nov labor market data
- Data catch-up: US headline PCE inflation for Sep is expected to increase by +0.3% over the month, up slightly from +0.26% in Aug. The annual rate is expected to increase to +2.8% from +2.7% in Aug. Core PCE inflation is expected to increase by +0.2% over the month, unchanged from Aug. The annual core PCE inflation rate is expected to remain unchanged at +2.9% in Sep.
- Data catch-up: Personal income is expected to increase by +0.4% in Sep, unchanged from +0.4% in Aug. Personal spending is expected to increase by +0.2% in Sep, down from +0.6% in Aug.
- Data catch-up: Factory Orders for Sep are expected to increase by +0.2%, down from +1.4% in Aug.
- Data catch-up: US import and export prices for Sep.
- The ISM PMIs: the headline manufacturing PMI is expected to be little changed at 48.6, while the services PMI is expected to slow slightly to 52.1.
- US labor market data: the ADP monthly employment change is expected to slow to +20k in Nov, from +42k in Oct. The Challenger Job Cut Announcement survey for Nov is expected to fall after the notable increase to 153k in Oct.
- Initial jobless claims for the wk ending 29 Nov are expected to remain little changed at 218k, after falling to 216k in the prior week. The continuing claims will be in focus for the wk ending 22 Nov – and could start to see furloughed Federal workers roll off the claims data. Continuing claims came in at 1.960m in the week ending 15 Nov.
- Michigan Consumer Sentiment – the prelim read for Dec should highlight the degree of any rebound from the end of the government shutdown.
Updated US data release schedules
- Link to the BLS page for the revised news release is here.
- The Bureau of Economic Analysis (BEA) schedule page can be found here.
- The US Census Bureau page can be found here.
European inflation and growth data
- The prelim Euro area CPI for Nov is expected to firm. Headline CPI is expected to increase to +2.2% in Nov, up from +2.1% in Oct. Core CPI is also expected to increase to +2.5% in Nov, up from +2.4% in Oct.
- Euro area GDP for Q3 is expected to be confirmed at +0.2% over the quarter, and employment growth at +0.1% over the quarter.
Canada’s labour market survey for Nov is expected to show stalled employment growth of -7k after a notable increase of +66k in Oct. The unemployment rate is expected to tick higher to 7% in Nov from 6.9% in Oct.
Australian GDP for Q3 is expected to increase by +0.7% over the quarter (QoQ), up from +0.6% in Q2.
The full suite of global S&P PMIs for Nov will be released this week, providing an update on activity and momentum midway through Q4.
This week, the US Treasury will auction and settle approx $691bn in ST Bills, Notes, and Bonds, raising approx. $66bn in new money.
QT this week: Approx $30bn in ST Bills, Notes, and Bonds will mature on the Fed balance sheet and will be reinvested. Approx $2.7bn in Notes and Bonds will mature on the Fed balance sheet and be redeemed (from Nov). The QT program will end as of 1 Dec.
More detail (including a calendar of key data releases) is provided in the briefing document – download the pdf below:
Comments and feedback are welcome. Please email me at kim.mofardin@marscapitalpartners.net
Mars Market Update: December 1st, 2025 – Santa Rally?
