Economy Holding In Amid Shutdown and Mixed Labor Signals

by Professor Jeremy J. Siegel, Senior Economist to WisdomTree and Emeritus Professor of Finance at The Wharton School of the University of Pennsylvania

It should have been an important and normal jobs Friday, but the data is still sidelined by the government shutdown—forcing us to evaluate a patchwork of indicators. Estimates of the weekly initial jobless claims remain surprisingly steady in the 220,000–230,000 range, exactly the “sweet spot” we’ve discussed for months. Yet October’s Challenger layoffs surged to the highest level in roughly five years, underscoring a disconnect that needs to be studied further. ADP payrolls and both ISM manufacturing and services indexes printed neither spectacular growth nor contraction—solid enough to suggest resiliency but not enough to quell uncertainty before we get the true jobs tally.

Meanwhile, the ongoing shutdown—affecting everything from air travel just as holiday bookings ramp up to catch‐up spending once it ends—has the potential to shave 1.5 to 2 or more percentage points off Q4 GDP, depending on its duration.

Markets are balancing this risk against the belief that the impasse will resolve soon, with short‐term “betting markets” still implying only a modest probability of prolonged gridlock ahead of the Thanksgiving travel week. In this context, real‐time spending and travel indicators will be critical over the next week or two, but so far, the economic engine has refused to stall.

On the policy front, the Supreme Court’s oral arguments on the tariff authority case have shifted the odds that the justices will strike down the current emergency‐based tariffs and some of our sources believe there’s a high chance the Trump Administration will lose. A ruling may arrive by year-end and could force Congress to act, though the administration retains alternative tools to impose trade measures. This could bring back some volatility and tariff related uncertainty back to the mix eventually. Our fiscal and trade outlook remains clouded by this uncertainty, even as the Fed’s next steps hinge more directly on lingering inflationary pressures and money‐supply trends we’ll examine in coming weeks.

The political backdrop adds another layer: off‐season special elections delivered a clear rebuke to Republicans, moving the implied probability of a Democratic House majority to roughly 70%. Voter sentiment—especially among independents—has swung against the GOP, and that undercurrent may complicate fiscal negotiations once the shutdown ends. I believe the Republicans should take a one-year extension on the tax credits for the ACA—a prolonged shutdown, particularly if it impinges on Thanksgiving travel will not help the Republican cause. Yet markets have shown remarkable composure. With the VIX volatility gauge hovering over 20.5—we do not see complacency either—those levels are associated with market participants hedging their portfolios.

In equities and credit, bearish head fakes abound: bears call for the top, yet with persistent AI capex and a Fed that clearly started an accommodative rate cut path, I see a better than even chance that dips will be met with fresh buying.

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