Weekly Macro and Policy Wrap-Up

Central banks diverge, but all face the same constraint: fiscal gravity.

United States

With official data suspended by the government shutdown, the only timely indicators this week came from the regional Federal Reserve surveys, which showed a mixed picture across districts. The Philadelphia Fed reported a sharp drop in overall activity and a further decline in employment sentiment, while the Kansas City Fed noted a modest improvement in output but still-soft hiring intentions. The ongoing softness in these employment components mirrors the weakness seen in consumer surveys — whether from the University of Michigan or the Conference Board — where job expectations and income sentiment remain depressed. Together, they point to a cooling labour market and subdued household confidence even as price pressures persist. Markets are now waiting for ISM and ADP data to gain a clearer view of U.S. economic momentum.

When we want to gauge the pulse of the American economy, we don’t ask Wall Street; we ask the consumer. The University of Michigan surveys tell us far more about the real economy than any market multiple ever could, and they now point to a K-shaped recession. The Misery Index, combining unemployment and inflation expectations, has reached record highs even as nominal spending remains strong. Consumers feel far worse than the data suggests because prices remain elevated, savings are depleted, and the perceived cost of living keeps rising faster than official inflation.