Despite a lack of government data, a flurry of dismal reports released last week paint a bleak economic picture, suggesting weakening business activity and a cooling jobs market will likely outweigh tariff-fueled inflation worries.
This sets the stage for the Federal Reserve to cut interest rates again in October and December, ING Group said in a report.
Though official economic data is unavailable due to the US government shutdown, private organisations continued to provide figures.
Services activity cooled
The ISM services index for September registered a decline, falling to 50 from 52, indicating flat activity rather than growth in the US.
This result was below the consensus prediction of 51.7 and even lower than all individual survey responses reported to Bloomberg.
Business activity has dropped to 49.9 from 55.0, the lowest point since the pandemic shutdown in May 2020. New orders also declined from 56.0 to 50.4.
Although the employment component increased from 46.5 to 47.2, it remains below 50, indicating a slower rate of job losses last month rather than job growth.
Both the services and manufacturing ISM series’ output measures, when compared to annual GDP growth, indicate a potential slowdown in growth over the next few quarters, according to historical data, according to ING Group.
Weaker jobs
“While we didn’t get the jobs report today, the ADP private payrolls numbers earlier in the week suggest the jobs market continues to cool, while the job openings numbers within the JOLTS report show there are now more unemployed people in America than there are job vacancies,” James Knightley, chief international economist, US at ING Group, said in the report.
In parallel with the aforementioned economic indicators, a discernible deceleration in the quits rate—a pivotal metric for gauging job turnover and labor market fluidity—is now signaling a significant moderation in wage growth, according to Knightley.
Projections indicated that this trend will likely lead to wage increases falling below the critical 3% threshold by early 2026.
This anticipated decline suggests a cooling labor market, where employees may have less leverage to demand higher wages due to a reduction in job openings or an increase in labor supply.
The implications of such a slowdown in wage growth are far-reaching, impacting consumer spending, inflation rates, and the broader economic outlook.
At the same time, a slowing quits rate – a measure of job turnover – is pointing to wage growth dropping below 3% in early 2026.
Tariffs pushing up prices
Tariff-related concerns persist regarding price and inflation increases. The ISM prices paid series, which climbed from 69.2 to 69.4 (significantly exceeding the 50 break-even point), did not alleviate these worries.
Nevertheless, tariffs have materialized at a slower pace than anticipated in the primary inflation metrics, namely CPI and the PCE deflator, which are the focus of the Federal Reserve.
Knightley added:
As such, the balance of risks to the Fed’s dual mandate of price stability and maximum employment justifies the central bank moving monetary policy closer to neutral with 25bp interest rate cuts at the October and December FOMC meetings expected.
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