(Reuters) -The U.S. government shutdown has thrown the brakes on the flow of federal economic data at a moment of uncertainty and division among policymakers like those at the Federal Reserve about the health of the U.S. job market, the trajectory of inflation and the strength of consumer spending and business investment.
But the shutdown itself – if history is any guide – is unlikely to leave a lasting imprint on the U.S. economy itself, even if it leaves policymakers and investors flying somewhat blind for an unknown stretch.
Over the last half century, the 20 previous shutdowns have lasted on average eight days and a median of four days, hardly long enough for the suspension of some government services and pay to federal workers to crater the economy.
That doesn’t mean it isn’t a headache for investors and officials tasked with economic stewardship.
Fed officials, for instance, have a decision on interest rates coming in four weeks that hinges in particular on their sense of just what is going on with the two things that most concern them – the job market and inflation.
For as long as the closure lasts, they will have to sift through a clutch of private-sector-sourced data sets that have been seen as limited substitutes for the granular figures issued by the Bureau of Labor Statistics, Bureau of Economic Analysis and Census Bureau.
“It pains me that we wouldn’t be getting official statistics at exactly a moment when we’re trying to figure out is the economy in transition,” Chicago Fed President Austan Goolsbee said Tuesday on “The Claman Countdown” on Fox Business.
JOBS REPORT DELAYED DURING SHUTDOWN
The Fed cut interest rates last month for the first time since December on growing concern about the job market. Projections from policymakers issued alongside that decision, though, showed a number of them are not convinced risks to the job market are significant enough to warrant more cuts in the near term.
Now they may not see the benchmark monthly employment report from BLS – originally scheduled for release on Friday – before their October 28-29 meeting if a shutdown drags on for weeks like the most recent one did during President Donald Trump’s first term.
Day one of the shutdown cast their dilemma in stark relief.
A measure of private-sector employment from payrolls processor ADP showed employers unexpectedly reduced headcount by 32,000 jobs in September, and private employment by their count has fallen in three of the past four months. With no data coming soon from BLS to truth-test that outcome, officials and economists have to decide how much weight to put on a data series long viewed as a poor proxy for the government data.
At the same time, recent large revisions to BLS data – and Trump’s firing of the BLS chief in August – have dented the agency’s credibility and have spurred interest in alternative data sources, including ADP.
“Growing concerns about the integrity of governmental economic data as well as the ongoing government shutdown have emphasized the need to broaden our data coverage, which will now include the ADP national employment report,” Matthew Martin, Senior US Economist at Oxford Economics, wrote on Wednesday.
The private payrolls drop reported by ADP, Martin said, “underscores the reticence of businesses to increase headcount. Given the weaker labor market data and the potential for a data fog should the government shutdown be prolonged, we will be pulling forward our forecasted December rate cut to October in the upcoming baseline.”
‘INCONVENIENT AND MESSY’
Meanwhile, even though hundreds of thousands of federal workers are on furlough and a range of important government services are suspended, shutdowns themselves don’t typically move the needle for the economy.
In only two shutdowns was there a contemporaneous contraction in economic activity – in a two-day shutdown in November 1981 under President Ronald Reagan and a three-day closure in October 1990 under President George H.W. Bush. In both cases, however, the economy was already in recession before the shutdowns occurred.
During stop-and-start shutdowns in the fourth quarter of 1977 under President Jimmy Carter that led to a total of 31 days of government closure spread over three months, economic growth skidded to a halt and curtailed government spending was a net drag on the economy. But growth snapped back the following quarter, and overall consumer spending was not slowed during the outages.
In fact, consumer spending on balance has continued to grow during the months affected by past shutdowns, growing by an average of about 0.5%. During the longest shutdown on record, a 35-day closure from late December 2018 through most of January 2019 during Trump’s first presidency, consumption over the two affected months fell by an average of 0.3%, but economists then blamed the slowdown on dissipating tailwinds from the tax cuts enacted earlier in Trump’s term and by the trade war he had kicked off with China.
And while the most recent shutdown during Trump’s first term saw a short-lived rise in claims for unemployment benefits by furloughed federal workers, that didn’t bleed into the wider job market. Labor Department data shows little movement historically in new claims for jobless benefits or in the U.S. unemployment rate during the periods affected by shutdowns.
“Government shutdowns are inconvenient and messy, but there is little evidence that they have a significant impact on the economy,” said Scott Helfstein, Head of Investment Strategy at Global X. “Typically, the lost economic activity, if meaningful in the first place, is recovered in the following quarter.”
(Reporting by Howard Schneider, Ann Saphir, Dan Burns and Lucia MutikaniEditing by Nick Zieminski)
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