Market Participants Flying Blind Without Economic Data
The federal payroll report (Employment Situation or "NFP"), eagerly awaited on the first Friday of each month, will not be available today or for the foreseeable future. The Bureau of Labor Statistics (BLS) which prepares it is, for all intents and purposes, temporarily out of business. And this is not the first piece of important data to go missing this week. Among the 800,000 federal employees furloughed on Tuesday are the researchers, compilers, and statisticians who compile dozens of reports that track and report on business, employment, construction, spending, disease, crops, weather, and public safety. Without the normal data flow, three Bank of America Merrill Lynch economists say they, along with the markets and the Fed, "are flying blind when it comes to tracking the economy."
The three, Joshua Dennerlein, Michael Hanson, and Ethan S. Harris write in an Economic Watch article "Data drought," that the September payroll report and several other indicators that should be released in the next few weeks feed directly into their GDP tracking model which they won't be able to update until the shutdown ends.
Until today the only economics-related releases affected has been the construction spending report scheduled for October 1, but next week there are three reports due, the wholesale inventories and trade balance reports for August and September retail sales data. By the middle of October we should also see data on the Consumer Price Index and Census Bureau information on housing starts and housing permits. Data on jobless claims will continue to be released on Thursdays because most data is collected at the state level and aggregated by the Department of Labor. The program is considered "exempt" from the shutdown.
Once the shutdown ends the economists say that experience gained from the last previous interruption indicates it will take a while for the flow of data to resume. That three-week long shutdown began in December 1995 and ended on January 6, 1996 but it took until January 19 for the BLS to complete the data collection it had started pre-shutdown, process it and release the September payroll report. This time it is fair to assume that much of the work on the report is completed and Merrill Lynch said it expects a much shorter post-shutdown time lag before it is released. If the shutdown ends this weekend the report could be released next week.
The October report is a different matter. The employer survey for that report is scheduled for next week. If the shutdown continues the economists expect that BLS will eventually conduct a retroactive survey regarding payrolls for that week. It is likely, however, that the statisticians will miss the scheduled November 1 release date, delaying the report for a week.
The outcome for the household survey is less clear. This survey, the basis for calculating the unemployment rate, labor force participation, and part time work, involves calling households to ask about their employment status. The longer the government agencies remain off-line the less time there will be to conduct the survey. BLS has two options - call the households and ask retroactively about their October job situation or forgo the survey entirely which, the economists say, is the likely outcome if the shutdown lasts through the month.
The Federal Reserve is self-funded so is not dependent on Congress to continue its operations and thus its data will continue to be released. This includes information on industrial production, bank lending, money supply, and various financial and currency reports. They will also continue to hold scheduled meetings but, as the economists point out, without the information they rely on from other government sectors the Fed policymakers will also be operating in a "data fog."