Potential Government Shutdown Threatens Key US Economic Data Delays

Potential Government Shutdown Threatens Key US Economic Data Delays

If Congress fails to reach an agreement to fund the government by the end of the current fiscal year on Tuesday, many federal operations will be suspended, and non-essential employees will be furloughed or laid off. According to updated guidance, the Bureau of Labor Statistics (BLS), responsible for releasing a series of “gold standard” U.S. economic reports, will cease operations and potentially delay Friday’s jobs report in the event of a government shutdown. Given the uncertainty surrounding the impact of U.S. President Donald Trump’s policies on the U.S. economy, indicators on employment, inflation and spending have become especially important. Any delays could impede critical policy decisions, such as whether the Federal Reserve should cut interest rates again when it meets next month. “You don’t want to be flying blind in a foggy environment,” said Gregory Daco, chief U.S. economist at Ernst & Young.

Potential Impacts on Economic Reports

If the government shuts down after Sept. 30, the first report to be impacted will be the BLS jobs report scheduled for Oct. 3. The agency’s heavy-hitting report on inflation — the consumer price index (CPI) — will be the next important data on the schedule to be affected, and reports from the Census Bureau on retail sales and new home construction also face the risk of being delayed.

Federal Reserve Reaction

Federal Reserve officials conducted their first interest rate cut of the year at their meeting this month, based largely on evidence of a cooling labor market, and policymakers are closely watching for any signs of further deterioration. The Labor Department, which oversees the BLS, issued updated guidance confirming that the statistical agency would suspend all operations and cease data collection during a funding lapse. The guidance stated that scheduled economic data would not be released during a government shutdown. While the plan estimates that it would take the entire Labor Department a half-day to complete shutdown activities, it said that tasks related to backup systems could take up to three days for the BLS. During the 2013 government shutdown, the BLS had to postpone the release of the jobs report and the CPI. The most recent U.S. government shutdown was in 2018-2019, but prior funding ensured that the BLS was able to release key data as scheduled.

Alternative Data Sources

Some third-party economic data will still be available, although these data are generally considered less comprehensive than government data, including private-sector employment data from the ADP Research Institute and existing-home sales data from the National Association of Realtors. Stephen Stanley, chief U.S. economist at Santander US Capital Markets, said that if the latest government data isn’t available before the Fed’s October meeting, it will be more difficult to make the case for another interest rate cut. Some officials have already been cautious about this and want to see more data. “While there is private data, i.e. Fed officials can survey their contacts, to at least get a sense of what’s going on, it just gets trickier without the macro aggregate data that we’ve grown to depend on,” Stanley said.

Broader Impact

Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, said that a government shutdown won’t push the U.S. economy into a recession, but it will exact a cost and add to the uncertainty that companies and business leaders are already dealing with. “By having this fight, let’s understand we are hurting the economy by adding uncertainty, and we are suppressing growth,” Bradley said earlier. Additionally, we should recognize this adds uncertainty to the markets.