Nonfarm payrolls canceled again tonight? U.S. government shutdown continues, making a Fed rate cut in December "even more difficult"
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The U.S. government shutdown has entered its sixth week, causing the Department of Labor to be unable to release the key non-farm payroll report for the second consecutive month. The economic data vacuum is plunging the Federal Reserve's December rate cut decision into unprecedented difficulty.
On November 7, media reports noted that as the shutdown drags on, economists are concerned that some October data may never be released, particularly unemployment figures that are of most concern to the Fed. At the same time, it’s not just employment data that are missing.
The White House warned last month that the October Consumer Price Index report also might be unprecedentedly unavailable, as collection of this data requires field visits to businesses. This means the Fed lacks an accurate read on labor market conditions, and cannot assess inflationary pressures, forcing it to make decisions 'in the dark.'
This data crisis is intensifying internal divisions within the Fed. According to a previous Wallstreetcn article, after the October rate meeting, Fed Chair Powell made it clear that, lacking key data, another rate cut in December was not a foregone conclusion. Several Fed officials then took the unusual step of publicly expressing their leanings on the next decision six weeks in advance, highlighting internal divisions.
Currently, the futures market shows investors still expect a slightly greater than 50% chance of a December rate cut, and private institutions have provided alternative data, but economists stress such data can never fully replace official statistics in scope or reliability. The data quality issue may further solidify Fed officials' stances in either the hawkish or dovish camp, making decision-making even harder.
Data Black Hole: October Unemployment Rate May Be Permanently Lost
The Bureau of Labor Statistics’ time window for collecting employment report data is the week containing the 12th of each month. The report is composed of two parts: an establishment survey generating non-farm employment numbers, and a household survey calculating the unemployment rate.
"I don’t think the household survey data will be released," said Ron Hetrick, senior labor economist at HR data firm Lightcast.
The crux of the problem lies in differences in data collection methods. Establishments typically keep payroll records and can report online, but tracking household respondents—requiring field visits and phone interviews—is much more difficult since they must recall employment conditions for a specific week.
Michael Reid, senior U.S. economist at RBC Capital Markets, stated:
"The longer the delay, the less reliable the responses. At some point, the Bureau may choose to forgo collecting October data and focus on November’s data, meaning the October unemployment rate will never be released."
Andrew Husby, senior U.S. economist at BNP Paribas, noted in a recent client report that even if the report is released, it will be full of cautionary notes—not least uncertainty over whether about 650,000 furloughed federal employees could push the unemployment rate up by 0.4 percentage points. The Congressional Budget Office estimates this would seriously distort the true meaning of the data.
A Policy Blind Spot Without Precedent
This longest-ever government shutdown in U.S. history has lasted into its second month, causing a comprehensive halt in government data and making it difficult for policymakers, investors, economists, and ordinary Americans to clearly gauge economic conditions.
Former Bureau of Labor Statistics Commissioner Erica Groshen said:
"Any monthly data involving the household survey may have blanks. The unemployment rate from the Current Population Survey will likely also be unavailable."
Goldman Sachs economist Ronnie Walker outlined three options for the Bureau last month: interview and ask about the original October survey period; interview but adjust the reference week to normalize the interview time interval; or skip October data collection altogether.
Walker pointed out that following the 1995–1996 and 2013 shutdowns, the Bureau chose the first option because it believed that seasonal distortions caused by shifting the reference week would be more problematic than recall bias arising from lengthening the time interval.
"However, the longer the shutdown lasts, the greater the risk the Bureau abandons the October data collection."
The White House warned last month the October consumer inflation report could, for the first time ever, be unavailable due to the shutdown, given the need for field data collection.
Fed officials must weigh the balance between a weakening labor market and continued inflation risks amid this unprecedented vacuum of information—a dilemma over which deep divides already exist.
Private Data Struggles to Fill the Gap
With official data missing, the market has turned to private institution data. According to a Wallstreetcn article, ADP’s report on Wednesday showed job growth in October remained weak and was narrowly concentrated in education and healthcare services.
But Fed officials have also cited weekly jobless claims—which continue to be reported by state governments during the shutdown—which so far have not shown any meaningful increase.
Bloomberg Economics constructed a labor market index using available alternative workforce data. Economists Stuart Paul, Andrej Sokol, and Anna Wong said:
"The index shows continued cooling in the U.S. labor market, though at a slightly slower pace."
However, for inflation, official statistics are even harder to substitute, given the relative lack of private sector alternatives.
This week, in the $29 trillion U.S. Treasury market, data from ADP Research, Challenger, Gray & Christmas Inc., and Revelio Labs pushed yields in opposite directions, and these conflicting data points highlight the tough situation facing everyone.
Columbia Threadneedle Investment portfolio manager Ed Al-Hussainy said, "The gold standard remains jobless claims and the official unemployment rate."
Michael Reid, senior U.S. economist at RBC Capital Markets, said: "This could worsen divisions. The quality of government data will be called into question."
The data quality issue will mean those officials more concerned about the labor market will push for further rate cuts, while those focused on inflation will argue for a pause, each side growing more entrenched in their positions.
Fed Internal Divisions Grow
Missing data is deepening existing policy divisions within the Fed. Powell managed to forge a consensus for a rate cut at the October meeting, even though fresh employment data was already lacking at that time. But he then quickly warned that repeating this in December "would not be so simple."
That warning was reinforced by several policymakers openly stating their stances soon after, in a rare move releasing signals of their preferences nearly six weeks ahead of the next decision.
According to the original schedule, at its December 9–10 meeting, the Fed will theoretically have the latest inflation data, but may lack reliable employment data—exactly the opposite of the situation at the October meeting.
Powell has framed the December debate as "mainly about the true condition of the labor market," because the sharp slowdown in hiring over the summer triggered worries about excessive monetary contraction, which drove the rate cuts in September and October.
"For some on the committee, it may be time to step back and see whether there is really downside risk in the labor market," Powell said at a press conference on October 29.
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