The ongoing United States government shutdown has triggered an unprecedented data blackout, leaving policymakers and investors navigating the world's largest economy without crucial official statistics. For over a month, nearly all economic data releases from federal agencies have been suspended, creating what Federal Reserve Chair Jerome Powell describes as "driving in the fog."
The Data Vacuum and Private Sector Alternatives
The shutdown has forced market participants to depend entirely on private-sector data providers, but the results have been far from reassuring. The absence of official figures from the Bureau of Labor Statistics (BLS) and other agencies means critical indicators like non-farm payrolls, which typically move markets and influence Federal Reserve decisions, have gone unpublished for both September and October.
The situation nearly became permanent earlier this year when President Donald Trump fired the head of the largely apolitical BLS in August after expressing dissatisfaction with weak job figures. He nominated EJ Antoni, a partisan figure, as replacement, though the White House subsequently withdrew this nomination. Fortunately, no new candidate has been proposed since, allowing some hope for the agency's independence once the shutdown ends.
Problems with Private Data: Inconsistency and Disagreement
While numerous private-sector alternatives exist, they suffer from significant consistency, reliability, and breadth issues. The most established alternative for employment data comes from ADP, an employment-technology company that has released private-sector payroll estimates since 2006.
Although ADP's figures appear to track BLS data at first glance, the correlation between initial releases—the most important for real-time economic tracking—is remarkably weak. Monthly changes show only 10% correlation, essentially making them uncorrelated, while three-month changes show just 50% correlation.
Compounding the problem, different private data providers frequently contradict each other. For the missing September and October payroll figures, ADP's numbers indicate a decline in September followed by an October rebound, while competitor Revelio Labs shows exactly the opposite pattern—a September rise followed by an October decline.
Broader Implications for Policy and Markets
The data vacuum creates particular challenges for Federal Reserve policymakers who rely on accurate information to set interest rates. Jed Kolko, who oversaw statistical agencies under President Joe Biden, worries that policymakers might overweight areas where private-sector data is more plentiful, such as employment, while underweighting harder-to-measure indicators like services inflation.
This could potentially tilt decisions toward interest-rate cuts based on incomplete information. The problem intensifies the longer the shutdown continues, as statistical models used by private providers are typically trained on and benchmarked against official data releases.
Market behavior underscores the continued importance of official data. Research by Derek Lemoine of the University of Arizona shows that market expectations of stock volatility decrease after official data releases, suggesting investors find them clarifying. The Economist's analysis indicates market sensitivity to official data has actually increased in recent years—contrary to what would occur if private-sector figures were adequate replacements.
Official data itself hasn't been without problems recently. Survey response rates have been declining, particularly since the COVID-19 pandemic, and revisions have been unusually large. Staffing cuts at statistical agencies have already caused issues, with a BLS memo in July revealing the agency had stopped collecting about 15% of prices in its usual sample, up from 5% during the pandemic's worst phase.
The timing of the shutdown is particularly problematic. The next few months will be especially challenging for data reconstruction, as the shutdown has now lasted long enough that recreating accurate figures will be difficult, if not impossible in some cases.
Fortunately, the shutdown appears likely to end within the next fortnight, bringing this troubling no-data experiment to a close. The resolution cannot come soon enough for an economy that still depends fundamentally on reliable, official statistics for informed decision-making.
