The US economy has continued to show resilience despite the ongoing government shutdown, according to Blerina Uruci, chief US economist at T. Rowe Price.
Uruci said that while the shutdown has disrupted some federal data releases, private sector indicators suggest economic activity has remained steady.
“The September consumer price index (CPI), scheduled for release on 24 October, is considered essential and will proceed, though future data may be less reliable due to disruptions in survey collection,” she said.
Uruci noted that categories such as gasoline, vehicles and apparel – where prices are tracked using private data – will be less affected.
“Owners’ equivalent rent is expected to ease from August’s spike and early signs of tariff pass-through are emerging, particularly in apparel and new vehicles,” she said.
To date, about one-third of tariff impacts have reached consumers, though debate continues over whether companies are absorbing the remainder.
In housing, Uruci observed that mortgage applications and refinancing have slowed slightly but remain historically low.
“If the Fed continues cutting rates, activity may rebound,” she said.
Meanwhile, home builder sentiment improved, as shown in the National Association of Home Builders Index. Uruci added that recent Purchasing Managers Index data has been mixed, with some regional surveys showing a slowdown and others reporting growth.
“Shutdown-related distortions are possible, though past shutdowns have shown varied impact,” Uruci said.
Moreover, small business sentiment has dipped slightly, with the National Federation of Independent Business Index falling to 98.81, but hiring plans are improving while consumer sentiment may weaken in upcoming surveys, though spending is expected to stay stable, consistent with previous shutdown patterns.
GSFM investment specialist Stephen Miller said markets are watching the release of the September CPI on 24 October for clues on inflation and future Federal Reserve action.
“Markets are looking at an increase of around 0.3 per cent in core CPI which would leave the annual rate at 3.1 per cent from a trough of 2.8 per cent in May,” he said.
“The inflation pulse – the three-month annualised rate of core CPI increase – would then be around 3.9 per cent, up from a trough of 1.7 per cent in May.”
He noted that the Federal Reserve Bank of Cleveland’s measures showed annual median and trimmed-mean inflation at 3.6 and 3.3 per cent, respectively, in August, well above the Fed’s 2 per cent target.
“It is difficult to reconcile those sorts of inflation rate measures with 10-year bond yields sustainably below 4 per cent, particularly given the magnitude of the US budget deficit funding task,” Miller said.
He added that the US labour market has shown signs of cooling – “not alarmingly so, but cooling nevertheless” – with markets expecting that to weigh on the Fed’s next decision.
“Markets seem to think that signs of a cooling labour market will be foremost in the Fed’s mind when it meets on 29 October, with them pricing a near certainty of a 25 basis points reduction at that time.
“With the median September dot plot indicating cuts in October and December, those market expectations seem fair enough. Nevertheless, it is still a high wire act that the Fed needs to perform to balance both sides of its mandate,” he added.
Miller cautioned that “sticky bond yields – while not currently front of mind for equity markets – may yet prove a headwind for equity performance and the economy.”
