Government shutdown drags into second week and starting to gum up the works

Trend watch

First, as the government shutdown drags into a second week, we’ve temporarily replaced the TSA air passenger chart on slide 6 with weekly hotel occupancy.

Additionally, in the absence of the Bureau of Labor Statistics (BLS) employment report – the monthly source for job growth, the unemployment rate, hours worked, and average hourly earnings – we included two charts from workforce intelligence firm Revelio Labs.

On that front, the White House has directed that the BLS immediately recall staff who prepare the monthly consumer price index (CPI). The BLS subsequently announced that the September CPI report will be released on October 24^th. However, the BLS was quick to note that no other releases will occur until the resumption of regular government services.

As a reminder, on slides 3, 4, and 5, we’ve marked the impacted indicators in red and are changing the trend to “Ø” once a data release has been missed since a stale trend shouldn’t be relied upon.

Note: Slides are available to clients in the full report. 

Our take

The shutdown highlights the necessity and importance of government efforts. Despite the warts, the government-sourced data is the best available in many cases and the only source in others.

As we mentioned here last week, there aren’t a lot of comprehensive inflation data series outside of pricing statistics for narrow slices of the economy like auto or housing data from private sources.

More importantly, decision makers and markets rely on these data to function. In the case of the CPI report, the third quarter is used to calculate the annual Cost-of-Living Adjustment (COLA) for benefits like Social Security and Medicare Part B premiums. The COLA rate for the following year is typically announced in November, thus delaying the September CPI report really gums up the works.

Additionally, other entities – including many states and municipalities – also use CPI to determine COLAs for retirement pensions. Moreover, many private companies routinely write contracts with price escalation clauses that are tied to CPI, as do attorneys for everything from alimony payments to union wage contracts.

Accordingly, the seemingly innocuous government shutdown impacts the economy in real ways and shouldn’t be taken lightly.

Lastly, releasing the September CPI report in two weeks means the Federal Reserve (Fed) will have a little more clarity in time for its two-day meeting on October 28^th and 29^th.

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 Fed to continue moving cautiously until there’s more evidence, which might be challenging to ascertain given the government-sourced economic data embargo.