Trend watch
We are encouraged by the 5% surge in container volumes in October at the Port of Long Beach, which is the second largest U.S. port in terms of volume.
Yet, global air cargo volumes declined 3% last week, primarily due to softness in the U.S. Two key factors drove the drop. The most significant was the Federal Aviation Administration’s (FAA) decision to reduce domestic flights by 6% because air traffic control staffing issues related to the government shutdown. This FAA-mandated restriction remains in place but is expected to be lifted soon. Additionally, the FAA grounded all MD-11 freighters following the tragic crash in Louisville, Kentucky. Despite last week’s setback, global air cargo has shown strong momentum in recent weeks, surging 8% in October and running 4% above 2024 levels through week 44.
As a reminder, on slides 3, 4, and 5 (available for clients in the full report), we’ve marked the impacted indicators in red and are changing the trend to “Ø” once a data release has been missed since a stale trend shouldn’t be relied upon.
Our take
The 43-day government shutdown – the longest in U.S. history – is finally over. Now the recovery begins, but it’s going to be a while before everything is back to normal. First, the aforementioned flight restrictions by the FAA remain in place, which is holding back air travel and adjacent activity such as hotels, restaurants, rideshares and rental cars, along with hampering air cargo shipments.
Selfishly, we’re anxiously awaiting the release of economic data. The Bureau of Economic Analysis posted today that it, along with key government data suppliers such as the Bureau of Labor Statistics and Census Bureau, will soon publish updated release schedules for the roughly two dozen delayed reports. We read that as early next week.
However, we expect the data catchup will come in uneven bursts. For example, we expect most reports originally slated for early October to be released within the next 10 days. That would be releases like the August trade data, the September employment report, which includes average wages, hours worked, and the unemployment rate, as well as September retail sales and some of the housing data.
The late September releases – such as third quarter gross domestic product (GDP), September personal incomes and spending – will likely come shortly thereafter, though some will be pushed back due to the Thanksgiving Holiday.
We anticipate the October data will be the most delayed since none of the surveys that are the basis for these reports were performed on time. We believe that many of these reports will be collapsed with the November release, which we’re basing on past shutdowns and the reopening period following the COVID pandemic. In other words, the October and November data will be released together, and will likely occur in early to mid-December.
The silver lining is that there's a playbook in a post-COVID world for this sort of disruption. That said, we probably won't get a clean read on the economy until early 2026.
Alas, the lack of key economic data complicates the Federal Reserve’s (Fed) December 10th meeting. We had been saying that we thought the Fed would lower rates another quarter point (0.25%) at the December or January meeting, not December and January as markets had been predicting several weeks ago.
Given the data delays we now anticipate, especially for the inflation readings, it’s increasingly likely that the Fed will simply punt a rate decision to the January 28th meeting. That’s been reinforced by a parade of Fed speakers essentially saying as much in the past week or so. Moreover, there’s the growing likelihood of another government shutdown on January 30th. Waiting appears to be the likely outcome from our seat.
Bottom line
The U.S. economy continues to muddle-through the uncertainties, including the government shutdown, and a dearth of key economic data. We expect the Federal Reserve to stay cautious and now see a much higher bar for a December rate cut given the lack of timely inflation readings, recent Fed commentary, and the looming threat of another government shutdown.
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