Economic Data Outpaced Expectations In October

The U.S. continued to defy expectations in October, from jobs to inflation to consumer spending to GDP.

The Citigroup Economic Surprise Index measures actual economic data relative to expectations on a daily basis. A positive reading implies the releases, in aggregate, have been stronger than expected; a negative reading implies the opposite. A surprise index doesn’t necessarily indicate whether the data is good or bad, but it does somewhat reflect general market sentiment in a given period relative to actual trends.

The Citi index has moved steadily higher since late August, and U.S. benchmark rates have consequently moved higher as well. Since the day before the FOMC reduced the fed funds rate by 50 basis points on Sept. 18, 5-year and 10-year Treasury yields have risen approximately 75 bps.

This increase in benchmark yields has largely corresponded with fed funds futures pricing a less dovish path of rate cuts for the next 12 to 18 months. To begin the month of October, markets were priced for 193 basis points of additional cuts through the end of 2025, but as of Oct. 31, it had shifted down to just 121 basis points, a 72-basis-point difference.

Circling back to the economic data trend, the jobs report was worse than expected on Nov. 1. Just 12,000 jobs were added to nonfarm payrolls in October — when more than 100,000 were expected — but there was quite a bit of noise in the data attributable to multiple hurricanes and the Boeing strike. The extent of this noise won’t likely be known until the November report is released in a little more than a month.

The magnitude of labor market softening will be a significant determinant of the Fed’s future rate cut decisions based on recent guidance from Fed Chair Powell and other Fed leaders.

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Jason Haley joined ALM First in 2008 and is the firm’s chief investment officer. He heads ALM First’s Investment Management Group (IMG), which is responsible for leading the investment process and investment theme development. Haley also oversees all capital markets activities, including portfolio management, trading, market research and commentary, and execution of hedging and funding strategies for the firm’s depository clients. He holds an MBA with a concentration in finance and a BBA with a concentration in marketing, both from The University of Mississippi.

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