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Shutdown Cuts Off Vital Economic Data 10/02 06:20
WASHINGTON (AP) -- The government shutdown that began Wednesday will deprive
policymakers and investors of economic data vital to their decision-making at a
time of unusual uncertainty about the direction of the U.S. economy.
The absence will be felt almost immediately, as the government's monthly
jobs report scheduled for release Friday will likely be delayed. A weekly
report on the number of Americans seeking unemployment benefits -- a proxy for
layoffs that is typically published on Thursdays -- will also be postponed.
If the shutdown is short-lived, it won't be very disruptive. But if the
release of economic data is delayed for several weeks or longer, it could pose
challenges, particularly for the Federal Reserve. The Fed is grappling with
where to set a key interest rate at a time of conflicting signals, with
inflation running above its 2% target and hiring nearly ground to a halt,
driving the unemployment rate higher in August.
The Fed typically cuts this rate when unemployment rises, but raises it --
or at least leaves it unchanged -- when inflation is rising too quickly. It's
possible the Fed will have little new federal economic data to analyze by its
next meeting on Oct. 28-29, when it is widely expected to reduce its rate again.
"The job market had been a source of real strength in the economy but has
been slowing down considerably the past few months," said Michael Linden,
senior policy fellow at the left-leaning Washington Center for Equitable
Growth. "It would be very good to know if that slowdown was continuing,
accelerating, or reversing."
The Fed cut its rate by a quarter-point earlier this month and signaled it
was likely to do so twice more this year. Fed officials said they would keep a
close eye on how inflation and unemployment evolve, but that depends on the
data being available.
A key inflation report is scheduled for Oct. 15 and the government's monthly
retail sales report is slated for release the next day.
"We're in a meeting-by-meeting situation, and we're going to be looking at
the data," Fed Chair Jerome Powell said during a news conference earlier this
month.
The economic picture has recently gotten cloudier. Despite slower hiring,
there are signs that overall economic growth may be picking up. Consumers have
stepped up their shopping and the Federal Reserve Bank of Atlanta estimates the
economy likely expanded at a healthy clip in the July-September quarter, after
a large gain in the April-June period.
A key question for the Fed is whether that growth can revive the job market,
which this Friday's report might have helped illustrate. Economists had
forecast another month of weak hiring, with just 50,000 new positions added,
according to a survey by FactSet. The unemployment rate was projected to stay
at a still-low 4.3%.
On Wall Street, investors obsess over the monthly jobs reports, typically
issued the first Friday of every month. It's a crucial indicator of the
economy's health and provides insights into how the Fed might adjust interest
rates, which affects the cost of borrowing and influences how investors
allocate their money.
So far, investors don't seem fazed by the shutdown. The broad S&P 500 stock
index rose slightly Wednesday to an all-time high.
Many businesses also rely on government data to gauge how the economy is
faring. The Commerce Department's monthly report on retail sales, for example,
is a comprehensive look at the health of U.S. consumers and can influence
whether companies make plans to expand or shrink their operations and
workforces.
For the time being, the Fed, economists, and investors will likely focus
more on private data.
On Wednesday, the payroll provider ADP issued its monthly employment data,
which showed that businesses cut 32,000 jobs in September -- a signal the
economy is slowing. Still, ADP chief economist Nela Richardson said her firm's
report "was not intended to be a replacement" for government statistics.
The ADP data does not capture what's happening at government agencies, for
example -- an area of the economy that could be significantly affected by a
lengthy shutdown.
"Using a portfolio of private sector and government data gives you a better
chance of capturing a very complicated economy in a complex world," she said.
The Fed will remain open no matter how long the shutdown lasts, because it
funds itself from earnings on the government bonds and other securities it
owns. It will continue to provide its monthly snapshots of industrial
production, which includes mining, manufacturing, and utility output. The next
industrial production report will be released Oct. 17.
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