1 year ago
Government funding gridlock is threatening to deprive the Federal Reserve of key data sources at a crucial time for the economy.
The Bureau of Labor Statistics won’t collect or publish data such as unemployment numbers and the Consumer Price Index in the event of a shutdown, a spokesperson said. And the Bureau of Economic Analysis may face the same restrictions if a 2021 shutdown contingency plan is any indication.
Economists warn that the loss of information about the labor market and inflation could hamper the Fed as it weighs how much further it needs to slow the economy to bring down prices.
Former Fed research official David Wilcox, now with Bloomberg Economics and the Peterson Institute, said it’s particularly unfortunate at the moment, “given the heightened risk of a recession getting underway in the next few months.”
“It’s never a good time to fly blind,” said Nick Bunker, who heads economic research for job listings site Indeed. “It’s particularly bad when you’re trying to land.”
Should the shutdown last more than a few weeks, economists predict the Fed could hold off on raising interest rates until it has a better idea of how the labor market is performing. They warn the uncertainty could spook investors.
“Several officials and leaders at the Fed have indicated that they’re really data-dependent right now in determining what interest rate decisions to make in the months ahead,” said Andrew Lautz, senior policy analyst at the Bipartisan Policy Center. “Not having this data available on time and at their fingertips — it does have a negative impact.”
Katharine Abraham, who served as BLS commissioner from 1993 to 2001, recalls being the agency’s only employee during a government shutdown in 1996 — and then getting called for jury duty. The judge let her go when she explained that she was the only person left at the agency.
Back then, the BLS tried to make the case that officials who produce economic statistics should be considered essential workers, according to Abraham.
"But we didn't get any traction," she said.
One mitigating factor this time around: Fed officials have started relying more on data from other sources, including payroll company ADP.
“One thing that did happen during the pandemic was that there was innovation in tracking the economy,” former St. Louis Fed President James Bullard said in an interview. “Wall Street, but also the Fed, invested in more timely information. … I think it's something that can be managed."
It’s not a perfect solution. There is no private-sector alternative to government-collected inflation data like the Consumer Price Index, for instance.
“It's too awful to contemplate what would happen if they had to operate in the absence of multiple CPI releases,” Wilcox said.
And while some government data can be collected retroactively, some cannot, such as grocery store prices.
“Your signal is going to be a little distorted,” Abraham said.
Sam Sutton contributed to this report.
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