Government shutdown, non-farm CPI all postponed! Without key data, will the Fed still dare to cut interest rates?

Written by: White55, Mars Finance

If U.S. lawmakers fail to reach a budget agreement before the fiscal year deadline (September 30), the federal government will face a partial shutdown, leading to the suspension of many non-essential administrative operations and a significant number of federal employees being placed on unpaid leave or temporarily laid off.

One of the chain reactions from this shutdown is the forced interruption of the release schedule for key economic data in the United States. According to the latest emergency plan, the Bureau of Labor Statistics (BLS), as the core agency releasing the "gold standard" economic indicators, will completely halt data collection and processing work. The non-farm payroll report for September, originally scheduled for release on October 3, may be delayed, and subsequent key data such as the Consumer Price Index (CPI), retail sales, and new residential construction are also at risk of delays. In the current context of high uncertainty regarding Trump administration policy direction, indicators of employment, inflation, and spending are crucial for assessing economic trends. If this data cannot be released on time, the Federal Reserve, market investors, and corporate decision-makers will lose important reference points, potentially affecting their next policy adjustments. For instance, whether the Federal Reserve will continue to cut interest rates at the October meeting will face a more complex judgment environment due to the absence of data. EY's chief economist Gregory Daco noted: "Decision-makers are reluctant to fly blind in a foggy environment."

1. Specific impacts of the economic data release mechanism being affected.

The Bureau of Labor Statistics, as the core agency of the U.S. economic data system, its employment report and CPI are widely regarded as authoritative indicators of economic health.

Once the government shutdown occurs, the agency will suspend all business activities as planned, including data collection, statistical analysis, and report preparation. Although the Department of Labor estimates that the overall shutdown process can be completed in half a day, the operations involving system backups and data preservation at the Bureau of Labor Statistics may take up to three days. This delay will directly disrupt several economic schedules originally set for release in early October. During the government shutdown in 2013, the Bureau of Labor Statistics was forced to postpone the release of the September employment report and CPI data. However, the shutdown in 2018-2019 did not affect data releases due to prior funding reserves, but this situation is more severe. First and foremost is the non-farm payroll report scheduled for release on October 3, followed by the CPI data on October 10, as well as the retail sales and new housing starts statistics overseen by the Census Bureau. The absence of this data will make it difficult for the market to assess consumer momentum, inflation pressures, and the real-time dynamics of the real estate sector.

II. The Auxiliary Role and Limitations of Third-Party Data Sources

Despite the government pausing the release of data, some economic indicators provided by third-party institutions can still offer reference, such as the ADP Research Institute's private sector employment report and the National Association of Realtors' existing home sales data. However, these data are often limited in coverage, and their methodologies differ from official statistics, making their authority and comprehensiveness difficult to replace with government reports. Stephen Stanley, Chief U.S. Economist at Santander U.S. Capital Markets, emphasizes that while the Federal Reserve can obtain local information through surveys of business contacts, the lack of macro summary data will significantly increase decision-making difficulties. It is worth noting that third-party data often focus on specific industries or regions, making it impossible to form an accurate portrayal of the national economy. For example, the ADP employment report only covers the private sector, while the government's non-farm data also includes government employees and key industry distribution, which is more instructive for policy-making.

Three, the impact of the Federal Reserve's policies on market expectations

The Federal Reserve implemented its first interest rate cut of the year during the September meeting, primarily based on signals of a cooling labor market and easing inflation.

If the latest employment and CPI data cannot be obtained before the October interest rate meeting, some officials may be inclined to postpone further action to avoid the risk of a misjudgment. Stanley pointed out: "Although there are alternative data sources, the lack of long-term reliable macro indicators will significantly increase the complexity of policy-making." In addition, corporate investment and consumer confidence may also tend to be conservative due to the data vacuum, further suppressing economic growth momentum. Neil Bradley, chief policy officer of the U.S. Chamber of Commerce, believes that while a government shutdown is not enough to directly cause an economic recession, it will exacerbate uncertainty in the business environment. When facing issues such as supply chain adjustments and investment planning, businesses often rely on regularly released macro data as a reference, and the absence of this data will extend the decision-making cycle and even trigger market fluctuations.

4. Insights from Historical Experience and Response Strategies

Based on historical experience, the impact of government shutdowns on the release of economic data is not unprecedented, but the challenges each time are different. In the 2013 shutdown, data delays led to significant deviations in the quarterly economic assessment, forcing the Federal Reserve to rely on lagging indicators and survey data to fill the information gap. If the shutdown is prolonged this time, economic analysis agencies may need to strengthen the monitoring of high-frequency data (such as weekly unemployment claims and credit card spending records) to construct a temporary judgment framework. To mitigate the impact of similar risks in the future, it is recommended to optimize emergency plans for data release mechanisms, such as backing up key data sets in advance, establishing inter-agency collaboration processes, or exploring simplified release models for certain indicators during shutdowns. Additionally, enhancing the complementarity of third-party data and official statistics can also help improve the resilience of the economic monitoring system.