The Economy’s Data Blackout Is About To Get Worse

The government shutdown makes it harder to tell how the economy is doing, and the problem is likely to get worse the longer the shutdown continues.

A report on the job market wasn’t released as scheduled Friday because the federal government shutdown closed the government’s data keeping operations. In less than two weeks, the Bureau of Labor Statistics is scheduled to release its monthly report on the Consumer Price Index, the most widely watched measure of inflation. This release will also be delayed if the standoff in Congress isn’t resolved and the government doesn’t reopen.

The data blackout poses a challenge for officials at the Federal Reserve, who are attempting to navigate the economy through a period of rising unemployment and high inflation. Officials can consider alternative measures of employment while the BLS is closed, such as data from payroll provider ADP, although these are considered less comprehensive than the “gold standard” data from the bureau.

However, there are fewer alternatives for measuring inflation.

“The longer we go without the official statistics, the more blind we’re going to be at what’s happening in the economy,” Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said on CNBC Friday. “There are more private sector observations that we can get on the job market than there are on inflation, and that makes me nervous. We don’t get a lot of ADP equivalence estimates of the actual prices.”

What’s The Alternative?

There are some private-sector alternatives to the data provided by the BLS, which are based on extensive surveys of businesses and individuals.

Truflation, a cryptocurrency firm, offers an alternative to the CPI that’s published daily rather than monthly. The website requires users to register to see recent data, and to pay to see historical data, unlike the CPI, which is available free to the public.

Truflation says its index is based on 18 million prices gathered from various sources. Truflation consistently shows lower price increases than the CPI. For example, its measure of consumer prices increased 2.3% over the year as of the end of August. That’s lower than the most recent CPI data, which showed a 2.9% annual increase that month.

The Institute for Supply Management also publishes indexes of prices paid by companies in the manufacturing and service sectors, which economists and policymakers closely watch. The ISM survey on services Friday showed 39.9% of companies said the prices they paid for materials and services rose in September, compared to just 3.2% who said their prices fell, suggesting that President Donald Trump’s import taxes are still stoking inflation.

That leaves the Fed in uncharted territory as its policy committee prepares to meet Oct. 28 and 29 to set interest rates. The Fed is tasked with using monetary policy to keep inflation low and employment high. According to the most recent government data, jobs were becoming scarcer, and inflation was accelerating.

Officials must decide whether to lower the fed funds rate, like they did in September, to lower borrowing costs and boost the job market, or keep rates higher for longer to combat inflation. As of Friday, financial markets were pricing in a 95% chance that the Federal Open Market Committee will go for a rate cut, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

The Fed’s dilemma is being made tougher by the information blackout.

“What should be in the decision of the Fed are the economic conditions, unemployment and inflation,” Goolsbee said. “That raises the degree of difficulty when we cover up one of the eyes or put a screen where you can’t see the data.”