Macro Dashboard

What Changed This Month

• Hiring picked up. Employers added 165,000 jobs in October, and August and September were revised up a combined 84,000. The unemployment rate edged down to 4.1% from 4.2%. Payroll jobs card
• Underemployment rose. The U-6 rate rose to 7.9% from 7.6%. It counts people working part time who want full-time work, plus discouraged workers. U-6 rate card
• More openings, more quits. In September, the job openings rate rose to 4.5% (7.5 million openings), and the quits rate rose to 2.1%. Job openings rate card
• Productivity held up. Output per hour in the third quarter was 2.1% higher than a year earlier. Unit labor costs rose 2.4%. Labor productivity card
• Prices rose 0.4% in October. Core prices, which leave out food and energy, rose 0.3%. October 2025 prices were never collected, so there is no official 12-month rate for October. September’s 3.7% is still the latest. CPI inflation card

Focus The Fed’s Dilemma

Higher interest rates can’t make oil cheaper. They can cool spending so an energy shock doesn’t spread to wages and other prices, and keep people expecting inflation to fall. The risk runs both ways. Raise rates too much, and the Fed slows a healthy economy over a shock that may fade. Raise them too little, and inflation may settle in.

In September, the Fed raised its target a quarter point, its first increase since 2023. On October 28, it held steady, saying “the accumulation of more information” will guide its next move. Two members voted for another increase.

October’s numbers give each side evidence. Those who favor another increase can point to stronger hiring, the upward revisions, and core PCE at 3.1%, well above the 2% goal. Those who favor waiting can point to core CPI at 2.6%, productivity growth that keeps labor costs per unit in check, and the fact that the main driver, gasoline, is a supply shock that interest rates can’t fix. October’s PCE figures, due November 25, will add another piece.

Beneath the Headlines

Inside GDP. GDP grew at a 3.4% annual rate in the third quarter, but two items pulled hard in opposite directions. Businesses built up inventories, which added 1.6 percentage points, while net exports subtracted 3.3 points as imports rose and exports fell. These two swing more than anything else in GDP from quarter to quarter, and the swings often reverse. Set them aside, along with government, and private demand looks stronger: final sales to private domestic purchasers rose 4.9%.

The parts that move with the cycle. Business investment grew 12.7%, led by equipment (up 20.9%), mostly computers. Spending on durable goods such as cars and appliances rose 2.3%. Housing investment fell 3.3%, its third decline in four quarters. Housing is worth watching: Edward Leamer found that trouble in housing and durable goods came before eight postwar recessions. A housing decline is a warning sign, not a forecast.

GDP and GDI. The economy can also be measured by adding up incomes instead of spending. That measure, gross domestic income (GDI), grew 2.6% in the second quarter, close to GDP’s 2.2%. In the fourth quarter of 2025, the two were far apart: GDP grew 0.2% and GDI 2.2%. When they disagree, the truth is probably somewhere in between. Some research finds GDI catches turning points sooner, but both get revised. Third-quarter GDI is due November 25.

The recession signal. The Sahm rule, shown on the unemployment card, flags a likely recession when the three-month average unemployment rate rises half a point above its low of the past 12 months. In October it read 0.00. It can’t tell layoffs from a growing labor force. When it was triggered in 2024, unemployment was rising mainly because more people were looking for work, and Claudia Sahm, who created the rule, warned at the time that it can’t tell the difference.

What simple policy rules suggest. Simple rules, such as the one John Taylor proposed in 1993, suggest a federal funds rate based on inflation and how far the economy is from full strength. The Cleveland Fed calculates seven versions, each with three sets of forecasts. For the third quarter, their prescriptions ranged from 3.66% to 6.84%, compared with the Fed’s target of 3.75% to 4.00%. Rules that move rates gradually landed near 4%, close to the actual target. Taylor’s original rule landed between 4.80% and 6.44%, because inflation is well above the 2% goal. The versions differ on the neutral interest rate, how to measure slack, and how quickly to move, so they are benchmarks, not instructions. These use forecasts from early September; the Cleveland Fed updates them each quarter.

Past editions

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