US Govt Shutdown Risks Data Delays, Fed Left in the Dark
The government shutdown that commenced on Wednesday will deny policymakers and investors access to crucial economic data necessary for informed decision-making amid a period of significant uncertainty regarding the trajectory of the US economy. The impact will be noticeable right away, as the government’s monthly jobs report set to be released on Friday is expected to be postponed. A weekly report detailing the number of Americans applying for unemployment benefits, which serves as an indicator of layoffs and is usually released on Thursdays, will be delayed. If the shutdown is brief, it will not cause significant disruption. However, should the release of economic data be postponed for several weeks or more, it may present difficulties, especially for the Federal Reserve. The Fed is facing challenges in determining the appropriate level for a crucial interest rate amid mixed signals, as inflation exceeds its 2 percent target and hiring has nearly stalled, resulting in a rise in the unemployment rate in August.
The Fed generally reduces this rate in response to increasing unemployment, while it either raises it or maintains it when inflation escalates rapidly. The Fed may find itself with limited new federal economic data to assess by its upcoming meeting on October 28-29, where a reduction in its rate is widely anticipated. “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. It would be beneficial to ascertain whether that slowdown is persisting, intensifying, or reversing. The Fed reduced its rate by a quarter-point earlier this month and indicated that it is likely to implement two additional cuts this year. Fed officials stated they would monitor the evolution of inflation and unemployment closely, but this is contingent on the availability of data. A crucial inflation report is set to be released on October 15, followed by the government’s monthly retail sales report the following day.
“We’re in a meeting-by-meeting situation, and we’re going to be looking at the data,” Fed Chair Jerome Powell said. Investors closely monitor the monthly jobs reports, which are usually released on the first Friday of each month. This serves as a vital gauge of the economy’s vitality and offers perspectives on potential adjustments the Fed may make to interest rates, impacting borrowing costs and shaping investor decisions regarding capital allocation. At this point, investors appear unfazed by the shutdown. The broad S&P 500 stock index experienced a modest increase during midday trading on Wednesday. Numerous businesses depend on government data to assess the state of the economy. The Commerce Department’s monthly report on retail sales provides a detailed examination of the health of US consumers and can significantly impact companies’ decisions regarding expansion or contraction of their operations and workforces. As the government remains closed, attention from the Fed, economists, and investors is expected to shift towards private data.
On Wednesday, the payroll provider ADP released its monthly employment data, revealing that businesses eliminated 32,000 jobs in September, indicating a slowdown in the economy. Nela Richardson emphasized that her firm’s report was not meant to serve as a substitute for government statistics. The data fails to reflect the developments occurring within government agencies, which could be an area of the economy notably impacted by an extended 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.
