US govt shutdown threatens timely economic data amid Fed uncertainty

The government shutdown that began Wednesday will deprive policymakers and investors of economic data vital to their decision-making at a time of unusual uncertainty about the direction of the US economy.

The absence will be felt almost immediately, as the government's monthly jobs report scheduled for release Friday will likely be delayed. A weekly report on the number of Americans seeking unemployment benefits a proxy for layoffs that is typically published on Thursdays will also be postponed.

If the shutdown is short-lived, it won't be very disruptive. But if the release of economic data is delayed for several weeks or longer, it could pose challenges, particularly for the Federal Reserve. The Fed is grappling with where to set a key interest rate at a time of conflicting signals, with inflation running above its 2 per cent target and hiring nearly ground to a halt, driving the unemployment rate higher in August.

The Fed typically cuts this rate when unemployment rises, but raises it or at least leaves it unchanged when inflation is rising too quickly. It's possible the Fed will have little new federal economic data to analyze by its next meeting on October 28-29, when it is widely expected to reduce its rate again.

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, senior policy fellow at the left-leaning Washington Center for Equitable Growth. It would be very good to know if that slowdown was continuing, accelerating, or reversing.

The Fed cut its rate by a quarter-point earlier this month and signaled it was likely to do so twice more this year. Fed officials said they would keep a close eye on how inflation and unemployment evolve, but that depends on the data being available.

A key inflation report is scheduled for October 15 and the government's monthly retail sales report is slated for release the next day.

We're in a meeting-by-meeting situation, and we're going to be looking at the data, Fed Chair Jerome Powell said during a news conference earlier this month.

On Wall Street, investors obsess over the monthly jobs reports, typically issued the first Friday of every month. It's a crucial indicator of the economy's health and provides insights into how the Fed might adjust interest rates, which affects the cost of borrowing and influences how investors allocate their money.

So far, investors don't seem fazed by the shutdown. The broad S&P 500 stock index rose slightly in midday trading on Wednesday.

Many businesses also rely on government data to gauge how the economy is faring. The Commerce Department's monthly report on retail sales, for example, is a comprehensive look at the health of US consumers and can influence whether companies make plans to expand or shrink their operations and workforces.

With the government closed, the Fed, economists, and investors will likely focus more on private data.

On Wednesday, the payroll provider ADP issued its monthly employment data, which showed that businesses cut 32,000 jobs in September a signal the economy is slowing. Still, ADP chief economist Nela Richardson said her firm's report was not intended to be a replacement for government statistics.

The ADP data does not capture what's happening at government agencies, for example an area of the economy that could be significantly affected by a lengthy 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.