Last week’s economic data sent mixed signals. Consumer sentiment plummeted to a near-record low on economic anxiety, and the manufacturing sector continued its long contraction. However, the services sector rebounded into expansion, while the ADP jobs report showed modest job growth, albeit within a softening labor trend. These conflicting data points, combined with the ongoing government shutdown and concerns over high tech valuations, ultimately led the S&P 500 to its first weekly loss in over a month.
ADP Private Employment Report
The ongoing government shutdown has delayed the Bureau of Labor Statistics (BLS) jobs report yet again, shifting the spotlight to ADP’s private sector employment report as the primary labor market indicator.
The October ADP employment report showed the private sector added 42,000 jobs last month, a reading that came in above the expected 32,000 addition. This followed a loss of 29,000 in September, marking the first monthly gain since July. While positive, the overall report continues to point to a softening labor market and remains well below the job growth seen earlier in the year.
The gains were most notable by sector in trade, transportation, and utilities, which added 47,000 jobs. By size, large companies (with more than 500 employees) accounted for the majority of the growth, adding 74,000 jobs last month.
University of Michigan Consumer Sentiment Index
Consumer sentiment dropped to its lowest level since 2022 in November, driven by worries over the ongoing government shutdown and its potential negative consequences for the economy. The University of Michigan Consumer Sentiment Index fell over 6% to 50.3 this month, the second-lowest sentiment reading of all-time. The latest reading was lower than the forecast of 53.0 and reflects a nearly 30% decline in sentiment compared to a year ago.
The index’s deterioration can largely be attributed to significant declines in consumers’ perceptions of current personal finances and expected business conditions. This decline in confidence was widespread across nearly all demographics, with one key exception: consumers with the largest stock holdings, who have benefited from the continued strength in stock markets.
On the inflation front, near-term expectations inched up slightly for the year ahead, rising from 4.6% in October to 4.7% in November. By contrast, long-term expectations cooled for the first time in four months, dropping from 3.9% to 3.6% for the five-year outlook.
The Consumer Discretionary Select Sector SPDR ETF (XLY) is tied to consumer sentiment.
ISM Manufacturing and Services PMI
The U.S. manufacturing sector contracted for an eighth consecutive month in October, with the ISM Manufacturing PMI unexpectedly falling to 48.7 from 49.1 in September. This figure was lower than the expected 49.4 and indicated a slightly faster rate of contraction. Although all four components that factor directly into the PMI improved last month, they remained in contraction territory. The sector has been in a sustained slump, contracting for nearly three straight years with only a brief expansion at the beginning of 2025. Responses indicate ongoing concerns around tariffs and the geopolitical environment.
In contrast, the U.S. services sector returned to expansion territory in October, bouncing back from a flat 50.0 reading in September. The ISM Services PMI rose to 52.4 last month, marking its highest level since February and exceeding the forecast of 50.7. This represents the eighth month of expansion for the year. Three of the four direct PMI components were in expansion territory, with Employment as the sole subindex in contraction. Furthermore, three components improved month-over-month, with Supplier Deliveries being the only subindex to decline. The services sector has now expanded in 60 of the last 65 months, dating back to June 2020. However, respondents are providing mixed reviews, with some expressing concerns over ongoing economic uncertainty while others describe business as strong and steady.
Market Reactions
The S&P 500 see-sawed last week, ultimately finishing down 1.6%, marking its first weekly loss in four weeks. As a result, the SPDR S&P 500 ETF Trust (SPY) fell 1.6% last week. Meanwhile, the S&P Equal Weight Index was down 0.2% from the previous week and the Invesco S&P 500 Equal Weight ETF (RSP) fell 0.2%.
The 10-year Treasury yield finished the week at 4.11%, while the 2-year note finished at 3.55%.
The CME FedWatch Tool currently shows a 66% likelihood that the Fed will cut rates by 25 basis points at their next meeting. Markets are also pricing in two additional 25 basis point cuts in 2026.
Economic Data in the Week Ahead
As the government shutdown reaches a record-setting length with each passing day, the resulting delay of economic data continues to grow. This week’s schedule was originally set to feature key indicators, including the latest Consumer and Producer Price Indices providing inflation data, and the Retail Sales report offering insight on consumer spending.
However, as these reports are likely to be delayed for a second straight month, the economic calendar for the week has become extremely light. Consequently, the focus shifts to a handful of scheduled releases: the NFIB Small Business Optimism report on Tuesday and the EIA’s Short Term Energy Outlook on Wednesday.
Originally published on Advisor Perspectives
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