Of all the ways a government shutdown can disrupt the economy, market watchers should be aware of one in particular: an absence of critical new data.
Right alongside furloughs and a pause in operations is the interruption of crucial work product, including the data that central bankers, corporate executives, analysts, and investors rely upon to interpret the economy and make decisions about money.
The timing is significant, and unless an agreement somehow appears, the all-important payroll report for September — scheduled for release on Friday by the Bureau of Labor Statistics — will be delayed, leaving the Fed potentially flying blind into its next interest rate decision.
All of this is especially worrisome because of how data-dependent the central bank has been under the leadership of Chair Jerome Powell, watching each release and carefully analyzing and cataloging it among the “totality” of data. Top-tier releases like the jobs report and both flagship inflation reports put out by the government will leave massive data holes.
But even before the latest threat of a government shutdown, policymakers and economists have signaled a shift toward using a wider variety of data sources, such as private-sector data from ADP’s private payrolls, out Wednesday morning.
Those data holes — or at least the labor market ones — are getting filled.
In a speech last month, Federal Reserve governor Christopher Waller, who is in the running to become the next chair of the central bank, said he uses ADP figures to assess the labor market, which he sees as continuing to deteriorate. And after US private payroll numbers published by ADP earlier in the summer also appeared to catch the weakening in the labor market before the government revised its own data, Waller’s approach seems particularly canny.
Wall Street economics teams have long used a wide slate of data sources. But last week Jeffrey Gundlach’s DoubleLine, a prominent bond firm, said that it is using variety of official and private data sources to assess the economy, precisely because of a decline in quality of data published by the BLS.
“Confronted by challenges to the accuracy and reliability of BLS data … it is more important than ever to possess robust, multifaceted approaches to economic analysis,” Ryan Kimmel, fixed income allocation strategist at DoubleLine, said in a note last week describing how data collection had narrowed significantly over the years, using modeling to replace actual observations.
In August, after downward revisions to previous jobs data jolted markets, President Trump fired the commissioner of the BLS. The decision prompted even more debate over the future accuracy of the bureau’s widely read employment and inflation reports — which had already been under the microscope given the agency’s hiring freeze.
Still, Wall Street, economists, and investors still greatly value government data from the BLS and other departments. And in a year filled with uncertainty, a halt to critical data will only add to the murkiness as the Fed, without its instruments, keeps the plane on autopilot and hopes that’ll be enough.