US Government Shutdown Fallout: Key Economic Data Delays Loom

Article Summary:

• Potential delay in the release of September jobs data due to the government shutdown.
• Significant impact on the release of key October inflation reports (CPI, PPI, PCE).
• Lack of data may hinder the Federal Reserve's ability to make informed decisions regarding interest rates.
• Potential for delayed or distorted October jobs data due to the shutdown.
• November jobs report and inflation data may provide a clearer picture of the economy.

Impact of the Government Shutdown on US Economic Data

As the US government shutdown nears its end, Wall Street analysts anticipate an imminent flood of key economic data that has been delayed by over a month. First up is the September jobs data.

Economists say the September jobs report was substantially complete before the government shutdown on October 1. Based on past experience, the US Bureau of Labor Statistics should only need two or three business days to finalize and release the report.

Morgan Stanley economists estimate the September jobs report could be released as early as this Friday, but is more likely to come out early next week.

Shutdown's Impact on Inflation Reports

The biggest “casualty” of the shutdown are the October inflation reports, as government employees were unable to collect price change information due to furloughs. In the worst case scenario, the October Consumer Price Index (CPI), Producer Price Index (PPI), and Personal Consumption Expenditures (PCE) price index may not be released at all. The PCE index is the Federal Reserve’s preferred inflation gauge.

Alternatively, the Bureau of Labor Statistics may attempt to piece together the month’s inflation trends. But economists caution that the reports will be of poor quality and may be released so late as to be almost meaningless.

Impact of Delays on Federal Reserve Decisions

The delayed release of the September jobs report and the lack of October inflation reports will deprive the Federal Reserve of sufficient data to decide whether to cut interest rates for a third consecutive meeting. Top Fed officials are scheduled to meet again in early December.

The October jobs report might offer some answers. That report was originally scheduled to be released last Friday, but economists say it could take as long as a month to complete.

Morgan Stanley estimates the October report may not be released until the few days before the Fed’s December 9-10 interest rate vote, or may even be combined with the November jobs report.

Even then, the usefulness of the October jobs estimates is questionable. The Bureau of Labor Statistics’ statisticians will have to piece together the report long after the fact by asking businesses and employees about employment situations at the time.

“To ask people whether they were looking for work during the four weeks eight weeks prior (i.e. three months ago) is mind-boggling,” says Thomas Simons, Jefferies’ chief US economist.

In addition, the furlough of hundreds of thousands of federal employees could also skew the October report, leading to negative readings.

Looking Ahead

The November jobs report is expected to provide a clearer, more timely picture of the health of the labor market. That report is scheduled to be released on December 5, and may be issued on time. The Fed may also see the November CPI data on the second day of its two-day meeting in December, which will be the first “clean” inflation data in months.

Disclaimer: Financial markets carry risk. Investors should be aware of these risks and seek independent financial advice if necessary. This analysis is for informational purposes only and should not be considered investment advice.