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The Dow Jones Industrial Average (DJIA) took another leg lower on Friday, testing below the 46,800 level for the first time in almost three weeks as an AI stock pullback and withering consumer survey results drag down both sides of the investment-consumption equation. Friday would have seen the release of the latest US Nonfarm Payrolls (NFP) jobs report, but the ongoing US government shutdown, which is officially the longest shutdown in US history, is crimping the flow of official data, leaving investors to grapple with volatile private data, and putting deep question marks where key inflation and employment numbers should be.

Consumer sentiment takes a knee

University of Michigan (UoM) Consumer Sentiment survey results showed that US spenders and earners are far more bitter about worsening economic conditions than previously expected by investors. The UoM’s Consumer Sentiment Index and Consumer Expectations Index both declined to some of their lowest levels on record, with the Sentiment Index falling to 50.3 from 53.6, and the Expectations Index slumping to 49 from 50.3. The steep declines highlight the deteriorating economic outlook for consumers, who have been facing worse employment, income, and hiring conditions through the second half of the year. Markets struggled to grasp deteriorating conditions at the surface level of consumer data, with the upper ranks of income earners covering inflation and job cut holes with outsized consumption spending power in the post-COVID economic era.

The UoM’s 1-year and 5-year Consumer Inflation Expectations survey results also showed a steepening of the consumer expectations curve, with 1-year inflation expectations rising to 4.7% from 4.6% and the 5-year outlook falling to 3.6% from 3.9%. A tightening inflation expectations curve implies that consumer-level economic concerns are shifting from general malaise to growing fears of a near-term deterioration. 

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Fed consumer sentiment results differ, but overall message remains the same

Fears of a 'K-shaped' economy, where a few high-income earners are outspending the lower portions of the income ladder just enough to paper over threats of steep economic downturns, have been growing through the year among academic circles, and now K-shaped data sources have been appearing to further complicate the issue. According to the Federal Bank of New York (Fed), consumer inflation expectations were relatively unchanged in October, with the New York Fed reporting a slight decline in 1-year inflation expectations to 3.2% from 3.4% and an unchanged 5-year inflation outlook at 3.0%. Despite the comparatively cooler data, even the New York Fed had to begrudgingly acknowledge that October’s household labor market outlook was “mostly negative”, while consumer perceptions of both current and future financial conditions worsened appreciably.

Shutdowns are the president's fault, except when they're not

The US government shutdown continues to roll on into record territory, and US President Donald Trump has the dubious honor of helming the federal government during the two longest shutdowns in US history, and also stands tall as the US President in office for the most federal closures. With official datasets frozen due to defunding, investors have been forced to pivot into sniffing out private datasets to try and estimate where inflation and labor market shifts are hitting, and the figures are not looking good. According to figures from DataWeave, major retailers Target (TGT) and Walmart (WMT) have seen their average prices rise 5.5% and 5.3%, respectively, a stark reminder that inflation figures tend to be a collection of assumptions, estimates, and averages, and can frequently mask steep, unbalanced price hikes that pummel a large number of lower-income consumers’ wallets.

Donald Trump’s personal solution to growing concerns about an affordability crisis was to take to social media and make a post demanding that everyone “STOP LYIN”, and instead claiming that his administration has actually “whipped” inflation. In 2013, Donald Trump was an aspiring political candidate who claimed via a social media post that “a shutdown means the president is weak.” However, that was before Donald Trump was personally at the helm of the two longest government shutdowns ever.

Dow Jones daily chart

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