Potential US Government Shutdown: Key Economic Data Delays Loom

Government Shutdown Threatens to Delay Crucial US Economic Data

If members of Congress fail to reach an agreement before the current fiscal year ends on Tuesday, many federal operations will be suspended, and non-essential employees will be forced to take unpaid leave or face furloughs. According to updated guidance, the Bureau of Labor Statistics (BLS), responsible for releasing a series of "gold standard" US economic reports, will cease operations and likely delay Friday's jobs report in the event of a government shutdown. Given the uncertainty surrounding the impacts of President Trump's policies on the US economy, indicators such as jobs, inflation, and spending are particularly crucial. Any delay could impede critical policy decisions, such as whether the Federal Reserve should cut interest rates again when it meets next month. "You don't want to be flying blind in a foggy environment," said Gregory Daco, chief economist at Ernst & Young.

Potential Impacts on Key Economic Reports

If the government shuts down after September 30, the BLS jobs report scheduled for October 3 would be the first to be affected. The agency's heavy-hitting report on inflation — the Consumer Price Index (CPI) — would be the next major data release affected on the calendar, and reports from the Census Bureau on retail sales and new residential construction also face the risk of being delayed.

Monetary Policy Decisions at Risk

Federal Reserve officials made their first interest rate cut of the year at their meeting this month, largely based on evidence of a cooling labor market, and policymakers are closely watching for any signs of further deterioration. The Labor Department, which oversees the BLS, issued updated guidance confirming that the statistical agency will suspend all operations and cease data collection during a funding lapse. Scheduled economic data will not be released during a government shutdown, the guidance stated. While the plan estimates that it would take the entire Labor Department a half-day to complete shutdown activities, it stated that tasks related to backup systems could take up to three days for the BLS. During the 2013 government shutdown, the BLS had to delay the release of the jobs report and the CPI. The most recent US government shutdown was in 2018-2019, but prior funding ensured the BLS was able to release major data on schedule.

Alternative Data Sources

Some third-party economic data will still be available, although these data are generally considered less comprehensive than government data. These include private-sector employment data from the ADP Research Institute and existing home sales data from the National Association of Realtors. Stephen Stanley, chief US economist at Santander US Capital Markets, said that if the latest government data is not available before the Fed's October meeting, it will be more difficult to make the case for another interest rate cut. Some officials are already cautious and want to see more data. "Although there's private data, i.e., Fed officials can survey their contacts to at least get a flavor for what's going on, things really get trickier without the macro aggregate data that we've relied on for so long," Stanley said.

Potential Economic Impact

Neil Bradley, chief policy officer at the US Chamber of Commerce, said a government shutdown won't push the US economy into recession, but it will create costs and add to the uncertainty that companies and business leaders are already dealing with. "By having this fight, let's understand we are hurting the economy by adding uncertainty, and we are suppressing growth," Bradley said earlier. In addition, a prolonged shutdown could disrupt other critical government services, including food and safety inspections, national park services, and the processing of passport and visa applications. These disruptions could have a ripple effect across various economic sectors, further compounding economic uncertainty. While it's difficult to quantify the precise impact of a government shutdown on the economy, it clearly creates an additional headwind at a time when the US economy is already facing challenges such as inflation, rising interest rates, and a global slowdown.