Government shutdown is “a plague on both of your houses”

Trend watch

The government shutdown has definitely cramped our efforts this week. The September employment report – the monthly source for job growth, the unemployment rate, hours worked, and average hourly earnings – wasn’t released this morning.

Moreover, the weekly jobless claims and the daily TSA air passenger counts were also not released, along with many other indicators. 

Our take

Today’s title – paraphrasing a line from William Shakespeare’s Romeo & Juliet – alludes to the disappointment towards both side of an argument. Alas, in the case of the government shutdown, the two political parties are attempting to score points, but most voters will likely ignore it, though some could be irritated by some government services that won’t be available during the shutdown. 

Markets are rightly ignoring the government shutdown, brushing it off as seemingly another D.C. distraction. They know – no matter how much each side smears the other – that this will get resolved in the coming weeks and will be quickly forgotten.

However, the government shutdown is important insofar as it stops the flow of a big chunk of the economic data that we heavily rely upon to craft our view of the economy (“we" = economists, markets, decision makers, etc.).

Zooming out, our economic view is a larger mosaic that’s crafted with many pieces. Some are government-sourced data, many others are from private sources, like freight data from the ports and the railroads, industry groups such as the National Association of Realtors (NAR), or earnings reports from public companies.

Despite all the warts, the government-sourced data is the best available in many cases and the only source in others. For instance, there aren’t a lot of comprehensive inflation data series outside of pricing statistics for narrow slices of the economy like auto data from Manheim or existing home prices from NAR.

In the meantime, everyone seems to be dusting off ancillary private data series such as the ADP National Employment Report or the Challenger Report (for announced job cuts). There’s a reason why we don’t regularly discuss them, and they aren’t on the Econ-at-a-Glance. These sorts of reports shouldn’t be completely ignored, but also aren’t a replacement for the real thing, and that’s why they don’t move markets.

At this point, while it’s an incomplete picture, we’re not flying completely blind. Obviously, the shutdown drags on data becomes stale, making it harder to get an accurate picture of the economy. Just keep in mind that this too shall pass. 

Bottom line

The U.S. economy remains in a muddle-through environment. We’re hopeful that the modest reacceleration in job growth during the past two months will persist, supported by certainty in tax policy and further clarity on the tariffs. We expect the Federal Reserve (Fed) to continue moving cautiously until there’s more evidence, which might be a challenge to ascertain given the government-sourced economic data embargo.