Despite the federal government shutdown beginning October 1, 2025, which disrupted the release of official labor and wage statistics, signs point to ongoing resilience in the U.S. economy. Private-sector data from ADP indicates that 44,000 jobs were added in October—surpassing forecasts—and suggesting that employment trends, while slowing, remain stable. This moderation appears linked to shifting demographic patterns and immigration policies rather than a broad economic contraction. n nInflation data from September shows a year-over-year increase of 3 percent, slightly up from 2.9 percent the prior month but below projections. The Federal Reserve’s target remains at 2 percent, and persistent housing costs—though gradually declining—are a key factor behind the elevated rate. Tariff effects on certain goods markets have also contributed, though these influences are anticipated to be temporary. n nThe Fed responded by reducing the federal funds rate by 25 basis points in October, a move expected to ease short-term borrowing conditions. However, statements from Chair Powell reflect caution about further reductions, especially as inflation risks re-emerge. The 10-year Treasury yield ended October at 4.12 percent, nearly unchanged for the month, despite briefly dipping below 4 percent. This benchmark rate, closely tied to mortgage financing costs, has generally trended downward throughout 2025. n nLooking ahead, economic growth sustainability hinges on employment expansion. Recent data shows employment growth nearing zero, raising concerns about long-term momentum. While trade-adjusted GDP figures suggest steady performance, sustained growth may require stronger labor market activity or a productivity boost—potentially driven by advancements in artificial intelligence. Historically, such productivity surges have had only short-lived impacts. n nFederal Reserve policy continues to balance inflation control with employment support. The central bank’s ongoing divestment of mortgage-backed securities has kept upward pressure on home loan rates. However, an upcoming halt to net balance sheet reductions in December may help lower long-term borrowing costs in the months ahead. n nTrade policy remains a source of uncertainty. Tariffs introduced in April under former President Trump, along with retaliatory measures from other nations, continue to affect business sentiment. Survey data from the Federal Reserve Bank of Atlanta shows that periods of high policy uncertainty—such as during the pandemic and the previous trade war—correlate strongly with reduced hiring expectations. Resolving trade tensions could therefore improve employment projections. n nIn Texas, regional economic indicators are mixed. Dallas Fed surveys indicate moderating business conditions across the state. Hiring intentions declined across manufacturing, services, and retail sectors, with the sharpest drop in retail. While not signaling immediate distress, this may foreshadow a broader labor market slowdown. Firms planning to reduce staff increased slightly in retail and services, though decreased in manufacturing. Continued monitoring will be needed to confirm any emerging trend. n nHousing markets remain under pressure. Mortgage rates fell by 13 basis points in October, dropping from 6.3 percent to 6.17 percent. High borrowing costs and macroeconomic headwinds continue to dampen activity. The mortgage spread—the difference between 30-year mortgage rates and the 10-year Treasury yield—rose slightly to 217 basis points, remaining above the historical norm of 150–175. This suggests potential for further rate declines if capital markets stabilize. n
— News Original —nU.S. Economic Overview n nNote: Because of the federal government shutdown that started on October 1, 2025, government-provided estimates for the employment situation, wages, and other statistics were unavailable for this report. These values will be provided again once the data becomes available. Wherever possible, privately-provided estimates will be monitored in the place of unavailable data. n nWhile economic data provided by several government agencies remains unavailable as of the end of October, the available data suggests continued resilience of the U.S. economy. Private payroll data provided by ADP showed 44,000 private sector jobs created in October, exceeding expectations. The slow jobs growth likely reflects evolving demographics and immigration policy—a macroeconomic deceleration, rather than a downturn. Without the context of the unemployment rate and other government-provided statistics, broader labor market conditions are difficult to assess, but business survey data indicates an improving private sector hiring outlook. Public sector employment and constrained economic activity resulting from the government shutdown remains a risk to near-term economic growth. n nThe federal government provided an update on the Consumer Price Index for September, which indicated a 3 percent increase in inflation year-over-year (YoY)—up from 2.9 percent the previous month. Although this came in below expectations, it remains well above the 2 percent inflation rate targeted by the Federal Reserve. This likely reflects elevated housing inflation, which has been trending downward for more than two years, and the impact of tariffs on certain markets. While both factors have contributed to persistent inflation, the impact is expected to be transitory. n nThe Fed lowered the federal funds rate by 25 basis points in October, which continues to ease financial conditions in the short-term debt market. While this rate cut was largely expected, several Fed representatives have expressed a sense of hesitation on future rate cuts, particularly as inflation risk begins to rise while labor market risk stabilizes. The 10-year Treasury yield finished the October nearly unchanged for the month at 4.12 percent, despite dropping below 4 percent mid-month. This rate, which provides a critical benchmark for mortgage rates, has trended down throughout the 2025 calendar year. n nStories We’re Following n nEconomic Growth Outlook n nThe issue: Concerns over the sustainability of national-level economic growth have been tied to the weakening outlook for employment growth. The empirical estimates and an extensive body of macroeconomics literature show that variability in economic growth largely corresponds with variability in the growth rate of labor (Figure 1). Without sustainably higher employment growth, economic growth is unlikely to remain at elevated levels. n nUpdates: In the most recent observations, the growth rate of employment was nearing zero. This resulted from a combination of factors, including a broad slowdown in labor markets and federal immigration policy. Although the recent trade-adjusted measurements of economic growth show the economy growing at a steady pace, this trend is unlikely to be sustainable without a corresponding resurgence of employment growth. An exception to this outcome is the possibility of a surge in productivity driven by the contribution of artificial intelligence. Historically, however, even surges in productivity are transitory in their impacts on economic growth. n nNotes: Real GDP and total nonfarm employment quarter-over-quarter growth, 1947-2025. Two observations from 2020 were dropped for scaling purposes. n nSource: U.S. Bureau of Economic Analysis, author’s calculations n nFederal Reserve Policy n nThe issue: The Fed is tasked with achieving a dual mandate of price stability and full employment. As inflation struggles to reach the Fed’s 2 percent target, the central bank maintains a delicate balance to reach their goals. As part of its broader balance sheet operations, the Fed also buys and sells long-term private and government debt. Its divestment in mortgage-backed securities has placed upward pressure on mortgage rates, which could continue for as long as the Fed maintains this policy. n nUpdates: The Fed reduced its target short term rate by 25 basis points in response to a weakening U.S. labor market. Although this cut was largely expected, a reluctance to continue cutting rates indicated by Fed Chair Powell likely contributed to a subsequent increase in long-term rates, including the 10-year Treasury yield and 30-year mortgage rates. However, an announced end of net balance sheet reductions in December could lead to a decline in long-term rates in the coming months. n nTrade Policy and the Employment Outlook n nThe issue: In April, President Trump initiated a series of tariffs on global imports. These tariffs and retaliatory tariffs levied by other countries impacted trade and capital markets while adding risk to the macroeconomic outlook. As uncertainty over the duration and magnitude of the tariffs hangs over consumers and businesses, the possibility of sustained tariffs could contribute to disruptions and restructuring of economic activity. n nUpdates: Tariff-related policy uncertainty continues weighing on businesses and consumers. Since the data collection began in 2017, the expected employment growth according to business surveys has declined sharply in the two instances of heightened economic policy uncertainty—first during COVID-19 pandemic and second during the global trade war. This indicates that a decline in policy uncertainty from resolving the global trade war could improve the employment outlook. n nSource: Federal Reserve Bank of Atlanta, and Baker, Bloom, and Davis accessed via FRED n nTexas Economic Indicators n nRegional economic data on employment and other indicators remains affected by the federal government shutdown. However, business sentiment survey data collected by the Federal Reserve Bank of Dallas showed a mixed outlook with overall conditions continuing to moderate in Texas. n nSource: U.S. Bureau of Labor Statistics and the Federal Reserve Bank of Dallas n nEmployment n nNotes: U.S., Texas, major metropolitan areas, and other metropolitan areas are each shown in different shades of blue. n nSource: U.S. Bureau of Labor Statistics and the Federal Reserve Bank of Dallas n nNotes: Goods-producing and service-providing industries are shown in different shades of blue. n nSource: U.S. Bureau of Labor Statistics and the Federal Reserve Bank of Dallas n nEmployment Outlook n nThe share of Texas firms planning to hire in the next six months fell in each of the 3 broad sectors of the state economy—manufacturing, services, and retail—with a steep decline in the retail sector (Figure 6). While this could indicate tapering business optimism potentially resulting from the resurgence of tariff-related uncertainty, it does not reflect unusual volatility. The number of firms planning to decrease employment declined in the manufacturing sector, while ticking up in the retail sector and services sector. Overall, the business survey data may provide early indications of a deceleration in the labor market in the coming months, but more months of observations would be required to show a change in the trend. This employment outlook survey remains a critical indicator of the labor market and economic trajectory. n nNotes: Share of Texas firms planning to increase (top) or decrease (bottom) employment in the next six months, by major sector. n nSource: Federal Reserve Bank of Dallas n nHousing and Mortgage Rates n nMortgage rates continued a persistent decline in October, as rates declined another 13 basis points from 6.3 percent to 6.17 percent (Figure 7). Broad-based housing cost measures across the U.S. continued showing deceleration in the housing market, as heightened mortgage rates and a sustained macroeconomic deceleration continue weighing on housing market activity. n nPersistent inflation clouds the Fed’s short-term interest rate policy outlook. However, a shift in their balance sheet policy, which is aimed at stabilizing their assets by purchasing Treasury securities, could drive down rates on U.S. government debt. Although the Fed announced no change in its offloading of mortgage-backed securities, the purchase of Treasury debt could ease financial conditions, indirectly driving down mortgage rates in the coming months. n nNotes: House price index data is provided through Q2 2025, and mortgage rate data is provided through the end of October. n nSource: FHFA and Freddie Mac, accessed via FRED n nThe mortgage spread (Figure 8), defined as the premium of mortgage rates over the 10-year Treasury yield, remained mostly stable in October, ticking up 3 basis points, from 214 to 217 basis points (i.e., from 2.14 percentage points to 2.17 percentage points). The mortgage spread, which provides useful context of mortgage rates in broader capital markets, remains elevated compared to the historical range of 150-175 basis points. This suggests that as capital markets normalize, mortgage rates could decline by another 50 to 75 basis points, relative to the 10-year Treasury yield. n nNotes: The mortgage spread is defined as the 30-year mortgage rate minus 10-year Treasury yield. Its typical range is 1.5 percent to 1.75 percent (150 to 175 basis points). n nSource: Freddie Mac, Board of Governors of the Federal Reserve, and author’s calculations; data accessed via FRED