Key Takeaways
- Data released this week showed that both inflation and the labor market continued to cool in November.
- Investors should view the numbers with some caution, given distortions stemming from the fall government shutdown.
- Analysts say data for December released in January will provide a clearer picture of economic trends.
After months of “driving in the fog,” as Federal Reserve Chair Jerome Powell put it in October, investors finally got a clearer view of the rearview mirror this week with the release of delayed employment, inflation, and retail sales data.
The results were likely not as conclusive as some on Wall Street had hoped, given lingering distortions in the data caused by October’s government shutdown. Analysts warn investors to take these figures with a grain of salt, and they expect Fed officials to do the same at their next policy-setting meeting in January.
“The latest employment and inflation data don’t materially change the economic narrative, though they do bring some questions on data quality,” wrote Wells Fargo economists on Friday. “Ultimately, the jobs market continues to steadily moderate, and consumer inflation is softening, just not to the degree that the November data suggest.”
Here’s what Wall Street learned this week, and what it means for the economy heading into 2026.
Jobs Market Slowing but Not Cratering
Payroll data released Tuesday showed that the US economy added 64,000 jobs in November. That’s significantly less than the 108,000 added in September, but a major spike from the loss of 105,000 jobs in October. The losses were caused by declines in government jobs stemming from buyouts of federal workers, which had not previously been fully reflected in official data. Overall, Morningstar senior US economist Preston Caldwell explains that the data showed “a labor market drifting further away from full employment.”
While those reports “could have delivered a lot of knuckleballs,” writes JPMorgan chief US economist Michael Feroli, they “didn’t do much to change the labor market narrative that prevailed before the government shutdown.” That narrative was one of a “low hire/low fire” market. Job growth has slowed significantly while weekly jobless claims have remained relatively low.
The uptick in the unemployment rate from 4.4% in September to 4.6% in November could start to look worrisome if the trend continues. That figure is the “biggest concern for most folks, and certainly for the Fed,” says RBC Economics senior economist Mike Reid. He also points to a spike in a different of measure of unemployment, which includes those working part-time for economic reasons, as a signal of slack in the labor market.
Inflation Cooling, for Now
This week also brought the release of highly anticipated Consumer Price Index data, which showed that inflation overall cooled more than economists expected in November. The headline inflation rate was 2.7%, while core CPI (which excludes volatile food and energy costs) fell to 2.6%.
However, analysts caution that disruptions in how the data was collected mean investors should be skeptical. No CPI data was collected for October, and November’s data was collected later in the month, when it may have been impacted by holiday sales.
“The data do appear favorable from a disinflation standpoint,” says David Doyle, head of economics at Macquarie Group, though he adds that he’s “treating it with an extra degree of caution.” He says he’ll pay especially close attention to data for December and January for evidence of whether the disinflationary trend remains.
“While the magnitude could be exaggerated in the November data, we’re not surprised by the downward direction of services inflation,” says Caldwell. He pointed to data on falling market rents, which has been suggesting a drop in housing inflation for months.
Retail Sales
Investors also got a look at retail data for October, which showed that sales were flat for the month.
Along with the jobs report, the retail sales data “paints a picture of an economy catching its breath,” writes Gina Bolvin, president of Bolvin Wealth Management Group. “Job growth is holding on, but cracks are forming. Consumers are still standing, but not sprinting.”
RBC’s Reid notes that the relative resilience in consumer spending is attributable in large part to higher earners, who get more income from non-labor-market sources like dividends, interest, and rent.
2026 Economic Outlook
Even after so much anticipation, this week’s data failed to offer a crystal-clear picture of where the economy is headed. “It would be an understatement to say that the figures were greeted with skepticism, with even some Fed officials slapping a warning label on the data, and suggesting that next month’s December figure will likely be more meaningful,” writes Douglas Porter, chief economist at BMO Economics.
Overall, economists say data released during the first few months of 2026 will help clarify the outlook, which has remained mixed. Doyle of Macquarie says he sees evidence that private sector hiring bottomed out in November, and that he will be looking for improvement in the new year. “There are some encouraging signs” as tariff-related uncertainty fades. “The range of possible outcomes is narrower now,” which he says should make businesses more comfortable in resuming hiring and other operations as usual.
At the same time, RBC’s Reid expects a pronounced rise in inflation in the first half of 2026 as tariff-related impacts continue to work their way through the economy, and that price pressures will ease after that. He says more pronounced disinflation in the housing sector could change the picture.
For now, “the big story is that most prices did not accelerate, groceries eased, and shelter costs are likely indeed fading,” Porter writes. He suggests that this week’s data brings the Fed closer to making three interest rate cuts in 2026—more than the bond market’s expectations for two cuts. Time will tell if that progress continues.
