Introduction to the Economic Data Blackout
For seven weeks, America experienced a blackout. Not a power outage engineered by a foreign adversary, but a self-inflicted one from a record-long government shutdown that shuttered federal agencies tasked with collecting and releasing timely economic data. It couldn’t have come at a worse time for the U.S. economy. Businesses are grappling with the fallout from tariffs, which are pushing consumer prices upward and intensifying uncertainty around hiring, expansion plans, and more.
The Impact on the Labor Market
Employment growth is showing signs of stalling, causing a divide at the Federal Reserve over whether to slash borrowing costs further or sit still on interest rate cuts. With the longest government shutdown in American history now in the rear-view mirror, it’s fair to ask: What did we learn? It’s been difficult to gauge the state of the labor market during the shutdown. That’s where private alternatives come in, such as those published by the payroll processing firm ADP and Revelio Labs, among others.
Private Sector Alternatives
In October, those measurements showed varying degrees of slowing job growth. New data from Revelio Labs showed the labor market contracting by 9,100 jobs in October. ADP, meanwhile, said in its latest report that employers added 42,000 jobs in October — dueling data points fueling anxiety about the state of the job market. “Some of the data that’s been put out — you have some data saying we’re going to slow down. You have some data saying we’re in a worrying slow down,” Martha Gimbel, executive director at the Yale Budget Lab, told Quartz Washington. “You have some data saying the sky is falling. Which one is it?”
The Role of Private Sector in Economic Data
What most observers are taking away is the complementary role that private sector should play. They say federal agencies like the Bureau of Labor Statistics have a longer track record in developing research and survey methods for every economic sector, along with being able to draw on significant resources to carry it out. “Private sources offer speed, specificity, and innovation that complement government data. They can track emerging trends, provide granular detail for particular sectors or geographies, and offer near real-time updates,” Jed Kolko, a nonresident senior fellow at the Peterson Institute of International Economics, wrote in a blog post. “But they cannot match the breadth, representativeness, consistency, transparency, or public commitment of official statistics.”
The Fed’s Data Problems
The next two-day Federal Reserve meeting is scheduled for Dec. 9 and 10. Central bank officials will decide whether to slash interest rates for a third time this year, or pause given the conflicting economic signals. Inflation is ticking up while employment growth is sharply slowing down. And it’s splitting the Fed over how to strike the balance in its dual mandate of low inflation and full employment. Central bank officials will have more economic data at their disposal by the time they meet again. But it’s possible that will be imperfect data given the catch-up ahead for BLS and other government agencies.
Inflation Data Challenges
While there are private sector backups for employment growth and consumer spending, the same can’t be said for inflation. Measuring price changes across the economy is an enormous task that only agencies like BLS are equipped to carry out. For example, private statistics are virtually non-existent for the service sector, which covers everything from the cost of purchasing a one-night hotel stay to a doctor’s visit. “We just don’t have as many companies that are releasing information on the pricing side as we do on the labor market,” Gimbel said. “And so we’re just flying blind there even more than we are on the labor market.
Conclusion
The last official inflation report released was for September. Now the October inflation report may never be published since most BLS employees were idled during the shutdown and it’s difficult to measure without using estimates. The October employment report may also never see the light of day. The White House warned on Wednesday that both those reports might not be issued. All that could mean caution at the Fed. After the October meeting wrapped up, Fed Chair Jerome Powell poured cold water on the idea that a December rate cut was a foregone conclusion given the economic data blackout. “Far from it,” he said. “I hope by the time of the December meeting, we’re getting a better flow of data.” The economic data blackout has highlighted the importance of government agencies in collecting and releasing timely economic data, and the challenges that private sector alternatives face in filling the gaps. As the economy continues to evolve, it is crucial that policymakers and businesses have access to accurate and reliable data to make informed decisions.
