Greater lack of US economic data leaves market and government in the dark

Tariffs are at their highest levels in decades. Hundreds of thousands of federal public employees are not receiving their salaries. Artificial intelligence threatens to reshape the American workforce.

What effect all of this is having on the US economy at this point is impossible to know.

Also read: Shutdown completes 31 days in the US and postpones release of the September PCE index

The country is nearly five weeks into a government shutdown that has paralyzed national statistical agencies and created the largest economic data blackout in history.

The normally steady flow of government information on employment, spending, wages, prices and other areas has been reduced to a trickle, leaving economists trying to fill in the gaps with informal reports and a hodgepodge of incomplete and often contradictory indicators from private sources.

There is no good time to be without reliable data. But this could be a particularly bad time. Job growth slowed sharply over the summer, leading to fears that the job market could be deteriorating rapidly.

Such a scenario would likely require an immediate response from the Federal Reserve (Fed), the American central bank responsible for maximizing employment and keeping inflation stable. But policymakers have no reliable way of knowing whether these trends continued into the fall — or perhaps reversed.

Tara Sinclair, an economist at George Washington University, compared the situation to driving on a highway in dense fog.

“Until something comes in front of you, or there’s a turn, you might be fine,” she said. “But at some point, something will come up in front of you — or a curve will come — and we don’t know when that will happen.”

Fed Chairman Jerome Powell used the same analogy on Wednesday, 10/29, acknowledging that the lack of data exacerbates an already difficult situation for policymakers, who need to balance the risk of a weakening labor market against still stubbornly high inflation.

The central bank cut interest rates by 0.25 percentage points for the second time this year. But, reflecting deep divisions within the committee, two leaders disagreed — one calling for a bigger cut and the other for no cut.

Even before the data blackout, President Donald Trump’s volatile policies on trade and immigration were already making it difficult for analysts to predict the direction of the economy — and for policymakers to decide how to respond.

The strike added yet another source of economic instability, especially as it continued without any prospect of a solution. Many federal employees lost their first full paycheck last week, and 42 million people were left without food benefits this weekend.

In this context, Powell cast doubt on the possibility of another interest rate cut at the Fed’s last meeting of the year, in December. He said this was “far from an obvious conclusion” given there were “strong differences of opinion” about the next step.

Powell also emphasized that the lack of data due to the shutdown could, in theory, lead the Fed to remain cautious.

“If there is a very high level of uncertainty, that could be an argument for prudence before acting,” he said at a news conference after the two-day monetary policy committee meeting.

Before that meeting, policymakers got a lucky break: The Bureau of Labor Statistics released September inflation data late last month, as it was needed to calculate the annual cost-of-living adjustment for Social Security benefits.

But the fog tends to thicken from now on. The agency was able to publish the September report because the data had already been collected before the government shutdown on October 1.

Since then, no new data has been collected. A White House official said last month that the administration may not be able to publish October’s inflation report. Reports on the job market, consumer spending, manufacturing and other topics are also at risk.

“We will forever have a question mark about what is happening now,” said Karen Dynan, a Harvard economist and former head of the Treasury Department in the Obama administration. “There is no way to retroactively recreate accurate estimates.”

Even when the government reopens, it will take time to restart the “data machine”. This means that when Fed officials meet on December 9 and 10, they may have little additional information about the state of the economy compared to last week.

And it’s not just the Fed that’s in the dark. Business executives try to forecast their sales to decide where and whether to expand their business. Investors try to assess the impact of tariffs, artificial intelligence and other forces on corporate profits and government revenues. State and local officials are trying to understand how the shutdown is affecting their regional economies.

Imperfect alternatives

In the absence of official statistics, economists turn to private sector data. These sources have multiplied in recent years, especially after the coronavirus pandemic, which boosted demand for new ways of measuring the economy.

Economists say this data can be useful, offering more up-to-date or detailed numbers than the government’s. But they leave big gaps.

For example, there is very little reliable private-sector data on the price of services—a broad category that includes medical procedures, haircuts, and interior design.

And no private source can provide a comprehensive estimate like the Gross Domestic Product (GDP), which measures the value of all goods and services produced in the country.

“These sources partially help us, but they don’t tell us what policymakers and businesses really need to know,” said Jed Kolko, who oversaw economic data at the Commerce Department during the Biden administration.

“And the longer we go without official statistics, the greater the risk that private data will start pointing in the wrong direction.”

Even in areas with more private data, such as consumption and the labor market, these sources only serve as complements, not substitutes. Most of these series are only a few years old, while government series cover decades. And even the biggest private companies don’t have a comprehensive view of the American economy.

This is particularly problematic now, when Trump’s policies affect regions, sectors, and demographic groups in different ways. A retailer that primarily serves low-income Hispanic consumers today has a very different perception of the economy compared to one that targets wealthier consumers.

Perhaps because of this, different sources tell conflicting stories about economic health.

The Johnson Redbook Index, a traditional measure of retail sales, indicates that consumption continued to grow at a healthy pace this fall. But a measure of debit card transactions published by Bloomberg shows a worrying slowdown.

Similarly, payroll processor ADP reported that private employers cut jobs in September, although a new weekly series from the company shows a slight rebound in early October.

Other sources, such as Revelio Labs, which specializes in labor market data, suggest that hiring has cooled, but has not stopped. States also continue to release data on unemployment claims, which have risen only modestly.

Turning point?

The conflicting signals worry economists because, historically, when the job market worsens, it tends to happen quickly.

In 2008, for example, the unemployment rate remained stable in the spring, but spiked to 6.1% in August, up from 5% in April. If something similar happens now, policymakers may not notice until it is too late to prevent significant damage.

“The economy changes direction, and you can’t tell just by looking out the window,” Dynan said. “It’s not impossible that when the data comes back we will find that something has happened in the economy that would require an urgent response.”

Some economists argue that it would be possible to detect a severe recession even without official data. But a more subtle change may go unnoticed.

Trump’s crackdown on immigration has worsened the problem, driving away foreign workers and discouraging new immigrants — which reduces labor force growth and makes it difficult to know what a “healthy” pace of job creation would now be.

“I don’t think a really bad economy can hide itself,” said Wendy Edelberg, an economist at the Brookings Institution. “But I think an economy that is getting worse can hide.”

Powell agreed: “If there was a significant change in the economy, for better or for worse, I believe we would notice it somehow.”

But having only a partial view of the economy at a time of great uncertainty increases the risk of error — whether by cutting interest rates too early and reigniting inflation, or by acting too late and causing unemployment.

Powell suggested that leaders differ over which mistake would be most costly, which helps explain why internal divisions are deepening.

David Seif, chief developed markets economist at Nomura, said: “The divide is going to get much worse.” He noted that in September, a significant group of Fed officials had already indicated that they did not want any further rate cuts this year.

Reliable data could help resolve the impasse, said Anil Kashyap, an economist at the University of Chicago and a consultant to several central banks. “When a committee is divided, data is often the deciding factor,” he said.

But the Fed may not have that luxury. Powell said Wednesday he hopes to have the relevant data by the December meeting, but Congress is still far from an agreement to fund the government.

“What do you do when you’re driving in fog?” Powell asked rhetorically. “You slow down.”