Fed Hampered by Data Shortage as Officials Weigh Qe Taper
A dearth of economic data caused by the U.S. government shutdown is making it harder for Federal Reserve policy makers to assess the health of the economy as they consider when to start paring unprecedented monetary stimulus.
The shortage “would tend to make me somewhat more cautious” about reducing the monthly pace of bond purchases, Atlanta Fed President Dennis Lockhart said yesterday at a conference in Atlanta. While he wouldn’t “rule out” tapering at the Fed’s Oct. 29-30 meeting, Lockhart said the shutdown is “compounding the murkiness of the situation that I perceived a few weeks ago.”
The first partial government shutdown in 17 years has delayed three economic data releases this week, including the Labor Department’s monthly jobs report, originally scheduled for today. The Federal Open Market Committee has said it will keep buying assets until the labor market has “improved substantially,” and in September it surprised investors by maintaining its $85 billion monthly pace.
The shutdown “pushes further into the future the time we can get a real assessment of where the economy is,” Boston Fed President Eric Rosengren said this week in a speech in Burlington, Vermont. “It is going to be much harder to get a gauge of what’s happening in the economy if we don’t have” statistics produced by agencies that are closed, he said.
An alternative date hasn’t been set for release of the September jobs report, the Labor Department said in a statement yesterday. The report, typically released on the first Friday of each month, includes the unemployment rate and data on payroll employment.
A longer shutdown could also delay the release of the jobs report for October, as government workers normally assigned to collect that data in the middle of the month wouldn’t be on duty, creating a “domino effect,” said Jonathan Basile, an economist at Credit Suisse in New York.
On the other hand, a quick end to the shutdown may give central bankers access to delayed data in time for their next meeting in October, San Francisco Fed President John Williams said yesterday. The costs from lack of data would become “far more acute” if the closing persists for months, he said.
The shutdown will trim economic growth as some 800,000 civilian workers deemed non-essential are furloughed, and it is having a ripple effect on federal contractors including Hartford, Connecticut-based United Technologies Corp.
The company’s Sikorsky Aircraft business slowed production of Black Hawk helicopters after Pentagon inspectors were furloughed, Gregory Hayes, the company’s chief financial officer, said Oct. 1 at a meeting with analysts and investors in Monterrey, Mexico. The inspectors are required to do reviews of the choppers as they’re being manufactured, Hayes said.
The Fed’s Williams estimated a two-week shutdown would trim economic growth by 0.25 percentage point in the fourth quarter. A week-long closing would probably shave 0.1 point from growth, according to the median estimate of 40 economists in a Bloomberg survey this week. The economy expanded at a 2.5 percent annualized rate in the second quarter.
The U.S. Commerce Department has suspended the release of economic data provided by its agencies. Reports on subjects from construction spending to factory orders are all issued by agencies within the department.
Private reports are still being published. Among them is the Tempe, Arizona-based Institute for Supply Management’s non-manufacturing Index, which yesterday showed that service industries in August expanded at a slower pace than forecast by economists.
U.S. stocks fell yesterday after the ISM gauge and on concern the government shutdown would hurt economic growth.
The Standard & Poor’s 500 Index fell 0.9 percent to 1,678.66 at 4 p.m. in New York, trimming a loss of as much as 1.4 percent. Ten-year Treasury yields decreased one basis point to 2.61 percent after rising three points earlier.
Measures of wholesale and business inventories, retail sales and international trade are scheduled to be released next week and also could be delayed if the shutdown continues. The three reports are used to compute gross domestic product.
“Clearly it means a much more opaque situation and probably on the margin means a more cautious Fed,” said Michael Hanson, a former Fed economist who is now senior U.S. economist for Bank of America Corp. in New York.
Bank of America economists are forecasting a December start to the Fed’s reduction in monthly asset purchases. The team will re-assess that projection this week as budget negotiations develop in Washington, Hanson said.
“All else being equal, the longer this drags on, the more likely it is we don’t get tapering this year,” he said.
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