The partial federal government shutdown that stopped the release of key economic data Federal Reserve policymakers and industry depend on — including an employment report that was due to be released today — means they will be operating in a fog at a precarious time for the economy.
The Bureau of Labor Statistics (BLS) was due to release the September employment report on Friday, but that has been pushed back indefinitely by the shutdown, which began after midnight early 1 October.
Other key data affected by the shutdown are the weekly jobless claims data, which would have come out Thursday, consumer price index (CPI) data due out 15 October, producer price index (PPI) data the next day and Personal Consumption Expenditures (PCE) price index data out at the end of October.
This lack of data shortly after the Fed made its first interest rate cut of the year in September in response to falling employment will make its job only harder.
"The FOMC will be flying blind at its meeting at the end of this month, if the government shutdown continues," Pantheon Macroeconomics said in a note Thursday.
Oxford Economics concurred, saying the shutdown "... would likely leave the central bank in a fog about the labor market, fueling support for an October rate cut rather than risk falling behind and having to cut more later."
Even a limited shutdown would lead to key data releases being delayed by as much as five to 10 business days, Pantheon said.
Still falling?
Recent US labor market data, especially sharp downward revisions that prompted President Donald Trump on 1 August to fire the head of the BLS, had shown a dramatic slowing in hiring. Fed chair Jerome Powell highlighted the sharp slowing in hiring as the main reason why the Federal Open Market Committee (FOMC) cut the target rate last month.
Analysts surveyed by Trading Economics ahead of what would normally be the Friday employment report forecast that employers added 50,000 jobs in September, up from 22,000 added in August and revisions that had slashed hiring in the prior three months.
In a possible foretaste of what Friday's BLS report might have revealed, private sector hiring fell by 32,000 in September, the sharpest drop since March 2023, according to private payroll firm ADP in its latest report on 1 October. Still, BLS employment data, which covers private and government payrolls, often diverges dramatically from ADP data.
The lack of data may also lead Fed officials and economists to focus on the Chicago Fed's new labor market indicators, which combine "real-time" private sector data combined with official labor statistics to provide a timely view of labor market conditions. The latest bimonthly indicator, released Thursday, estimates the September unemployment rate at 4.3pc, unchanged from August.
As of Friday morning, CME's FedWatch tool shows 98.9pc (i see 96.7 now) probability Fed policymakers will cut the target rate by 25 basis points at the next meeting on 29 October, with 88.7pc (86.6pc) odds of another quarter-point cut at the following meeting on 10 December. Those are higher odds than just just a week earlier.
'Small hit to GDP'
The government shutdown could create a "small hit to GDP growth" in the short term, as furloughed workers will limit non-essential spending and contractors and businesses tied to federal decisions and funding lose income, Pantheon said.
But Trump's announced intention to use the furloughs linked to the partial shutdown as a pretext to make long-term cuts to the federal workforce means the impacts on the labor force may be longer lasting, Pantheon said.
Oxford Economics estimates that the partial government shutdown will reduce GDP growth by as much as 0.2 percentage points for every week that it continues, while a shutdown lasting the entire quarter —which has never happened — would reduce fourth-quarter GDP growth by as much as 2.4 points. Oxford sees a prolonged shutdown as unlikely.
