Besides the masses of government employees that would be put on furlough if a U.S. federal government shutdown occurs, and the potential market volatility caused by uncertainty over both the budget and over healthcare reform, one of the big problems of a federal government shutdown is that there’s a lot of vital economic data that is produced by…you guessed it, the federal government. If a shutdown goes into effect, the U.S. government will shut down all “nonessential” functions. This would include the economists, statisticians, and data processors of the Labor Department’s Bureau of Labor Statistics. This is the organization that puts out the crucial monthly nonfarm payrolls report, which details the number of new nonfarm jobs and an estimate for the current unemployment rate.
The September report is currently scheduled to be released the morning of Friday, October 4th…that is, if the government is still running on Friday. If Congress can’t pass a budget decision by midnight tonight, the shutdown will take effect. There are a couple of potential ways this could play out for Friday’s nonfarm numbers. First, it could be delayed. The BLS finishes up their data collection on Monday. Normally, they’d run the data on Tuesday and Wednesday, compile the report on Thursday, and release on Friday. If the BLS continues to be deemed “nonessential,” then there will be no one to run the data or compile the report. So, in a best case scenario of a shutdown, the nonfarm payroll number would be delayed by the length of a shutdown plus two or three days.
Another potential outcome is that the Office of Management and Budget (they’re the ones who determine which government functions are essential and nonessential) could decide that release of the payroll report was critical, and could authorize the BLS to keep enough staff to get the report finished on time. This would be the last employment data available to the Fed before their October meeting. And if the Fed is trying to decide whether to slow their bond purchases, they’ll likely favor continuing if they don’t have reliable employment data.
Even if the Fed’s lucky enough to have the September employment report. They and we will be missing other important, albeit less critical data releases. The Commerce Department has said that they will suspend all data releases in the case of a shutdown, which would affect Tuesday’s construction spending data and Thursday’s factory orders report. This means that the Commerce Department may not release September retail sales on October 11 or housing starts on October 17. September retail sales are key data to assessing the pace of third-quarter consumer spending. The housing data are perhaps even more critical to the Fed than consumer spending. The FOMC really wants to know the degree to which rising mortgage rates are affecting construction spending and home sales. Oh, and by the way, the CPI, a key inflation measure may not be released on October 11 either.
The Fed meeting isn’t until the end of the month, and it’s (hopefully) unlikely that a shutdown would last that long, but any delay in data releases adds uncertainty to the Fed’s data-dependent decision-making process
And uncertainty can add volatility.
Our preferred outcome would be the “no-shutdown” scenario. While that would likely only buy calm until the debt-ceiling debate starts up in earnest, it would be one less source of concern. Barring that, a decision from the OMB to push the payroll data release would be our next preference, since it would help markets that are desperate for data to determine the course of the U.S. recovery. Even in this second-best scenario, the government statistical agencies will likely not be releasing any additional data not deemed critical as long as a shutdown persists.
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