Submitted by Uric Dufrene, Ph.D., Sanders Chair in Business, Indiana University Southeast
The first Friday of every month is a day that economic watchers eagerly anticipate. It’s the Super Bowl of all economic indicators — the Bureau of Labor Statistics’ (BLS) Employment Situation Report. This single report tells us more about the economy’s health than any other monthly release. It reveals whether the labor market is running hot or cold, whether inflation pressures might intensify or cool, and whether the economy’s next move is up or down.
The employment report comes from two surveys. The establishment survey provides the headline jobs number — whether companies are expanding payrolls or cutting back. The household survey gives us the unemployment rate. Together, these two components form the backbone of how we understand the nation’s economic momentum.
Unfortunately, we didn’t get that crucial report last Friday because of the federal government shutdown. No jobs number. No unemployment rate. And a bit of darkness on the economic trajectory.
We do have some data released before the shutdown, along with several private-sector indicators. Collectively, they paint a mixed picture, but the weight of evidence continues to tip toward slower growth.
Let’s start with the broadest measure, Gross Domestic Product (GDP), the economy’s scorecard. The most recent report showed growth of 3.8% from the prior quarter, a figure that looks quite strong at first glance. But as is often the case, it pays to look under the hood.
During the first quarter, there was a surge in imports as manufacturers and retailers rushed to bring in goods ahead of potential tariffs. Because imports are subtracted from GDP, that surge artificially reduced GDP by 0.6%, even though the underlying economy was not actually shrinking. Pundits quickly seized on that number to fit whatever narrative they favored.
Fast-forward to the second quarter, and the pattern reversed. Imports fell sharply — the mirror image of the earlier spike — which mathematically added about five percentage points to GDP growth. That swing turned what would have been roughly –1.2% growth into a headline gain of +3.8%. In other words, much of the “strength” in that report came from the accounting effect of lower imports, not necessarily from genuine economic acceleration.
Several private indicators reinforce that slowdown narrative. The ADP National Employment Report, which tracks private-sector payrolls, showed a decline in September.
While the ADP and BLS reports often diverge month to month, the weakness in ADP’s data will likely strengthen the case for the Federal Reserve’s next rate cut.
Meanwhile, the Institute for Supply Management (ISM) released its twin surveys on manufacturing and services. The ISM Manufacturing Index remained below the critical 50 mark, signaling contraction. Manufacturers continue to struggle with higher borrowing costs and renewed supply chain uncertainty tied to tariffs. The ISM Services Index, which has been in expansion territory for nearly all of the post-COVID recovery, slipped to exactly 50, the lowest since the pandemic and below expectations. The index has been trending downward since late 2024, suggesting that service-sector growth is also losing momentum.
Taken together, these reports indicate that the economy is still expanding, but at a slower and more uneven pace.
If there’s one consistent source of strength, it’s the American consumer. Despite dour headlines and shaky confidence readings, consumer spending remains resilient. Shoppers haven’t shut their wallets, particularly at the upper end of the income scale, and that spending has been a key driver of economic growth.
Still, this resilience has limits. The one report that could quickly change sentiment is the employment report itself. A weaker labor market, fewer jobs and slower wage growth, would likely cause consumers to pull back. Without the BLS report, we’re flying partly blind. But the private-sector clues are increasingly pointing toward a softening labor market.
Even without the government’s data, the broader picture is coming into focus; an economy that is cooling, not collapsing. Manufacturing remains weak, services are slowing, and consumer spending is steady but fragile. When the next jobs report finally arrives, it will likely confirm what these early signals are already telling us. The economy is moving toward slower growth.
