Government Economic Data Was In Trouble. Then Came The Shutdown.

The federal shutdown is on the verge of ripping a hole in the government’s ability to deliver market-moving reports on inflation and employment.

The longer Congress is stuck in a stalemate over government funding, the greater the chance that furloughed Labor Department employees won’t have the data to provide accurate updates on where the economy stands.

The jobs report for September has already been delayed — and there’s a real threat that the next month’s release will also be affected. Closely watched consumer price measurements slated for next week are all but certain to be postponed absent a major breakthrough in government funding talks. A key report on import and export prices scheduled for Oct. 16 could also be derailed.

“We’re right up against it,” former Bureau of Labor Statistics Commissioner William Beach, who led the agency during President Donald Trump’s first term, said in an interview. “You want a sufficient sample for everything.”

The quality and timeliness of BLS reports guide everything from investment decisions around the globe to Federal Reserve deliberations on interest rates. And the challenges posed by the shutdown are hitting the agency as it faces scrutiny over the quality of employment data. Trump’s firing of BLS Commissioner Erika McEntarfer — and his now-abandoned push to appoint an avowed partisan as her replacement — have fueled concern that future reports might eventually be manipulated for political gain.

What’s more, the economic outlook is already foggy — even Fed Chair Jerome Powell acknowledges that most forecasters have little confidence in their projections — and central bankers have been divided over where to set short-term borrowing costs given the risks posed by a softening labor market and rising inflation.

Private sector gauges that track employment and inflation aren’t as comprehensive as Labor Department reports, and they frequently use the government’s official data as a benchmark for accuracy.

BLS pegs the monthly jobs report to the week that includes the 12th of the month, which for October means the seven days spanning from this Sunday through the following Saturday. This is so that the measurement period is roughly consistent over time, while accounting for holidays and other calendar considerations.

If the shutdown extends into next week, BLS would not be able to collect data from smaller businesses that don’t submit employment information electronically — narrowing the window for what type of employers are included in the monthly survey. The situation would get even dicier if the standoff continues deeper into October, as it would encroach on when the government conducts interviews with tens of thousands of individual households to determine the unemployment rate.

The risk of a shortened sample window could affect the already sagging response rates that have plagued BLS surveys, force other workarounds that could affect the data, or prevent its release entirely. BLS data streams were affected by the mass disruption of the early months of the Covid-19 pandemic in 2020.

BLS operated normally during the record-breaking partial shutdown that began in December 2018 in Trump’s first term, and put out a jobs report for January that actually beat market expectations at the time. But now the agency is deeply affected by furloughs and, more broadly, is in a much tougher reputational, budgetary and staffing position. Then, as now, the BLS is being led by William Wiatrowski in an acting capacity.

The consequences could extend beyond the employment report. A prolonged shutdown could also affect the accuracy of this month’s consumer price index, a signature inflation barometer produced by BLS.

While auto prices, gas prices and other large components of CPI are now submitted electronically by major data providers — and are therefore less likely to be impacted by the shutdown — BLS still relies on surveys and shoe-leather collection efforts to compile inflation estimates for thousands of food items and other goods.

Smaller, less diverse sample sizes make for weaker estimates. A longer shutdown would impede the agency’s ability to gather enough information to produce individual price indexes that feed into CPI, said Omair Sharif, the president of Inflation Insights. And if lawmakers fail to reach an agreement until late October, that could force BLS to scrap its inflation report for October.

“If we’re up to October 22, October 23? That — to me — is almost a cutoff point where we should start to think [that] we’re probably not going to have an October CPI,” Sharif said.

In the absence of official data, bond investors are anxious for any scrap of information that could provide a snapshot of the economy’s overall health.

But private sector inflation estimates lack the breadth of items covered by CPI. And the most closely independent employment trackers — including ADP’s private sector payroll report — typically fine-tune their estimates against what BLS has reported.

Earlier this week, The Carlyle Group published an estimate that employers added 17,000 jobs in September. But the firm frequently calibrates its estimates, which are derived from information reported by the 275-plus companies in its investment portfolio, against official data.

And while economists and statistical experts have raised red flags about the quality of BLS employment data — particularly following massive revisions that erased roughly half the job gains reported in the 12 months ending in March — the consensus view is that private sector measurements are generally worse. As Sam Tombs of Pantheon Macroeconomics put it in a recent note to clients, “most alternative indicators of payrolls are garbage.”

“A raft of alternative indicators of employment have leapt into the vacuum created by the pause on most official data releases,” Tombs wrote. “Unfortunately, they are much worse guides to the official payroll data than many long-standing survey measures.”