With the U.S. government still in shutdown, investors are left trying to make sense of a marketplace that is missing many of its key economic yardsticks. Without the Bureau of Labor Statistics, our country would be paralyzed in this pandemic, unable to publish its monthly jobs report. This lack of formalized data has led to a very scary data blackout that has economists and investors alike on edge. With the shutdown, Wall Street has been left to rely on private sector data. Many economists and data analysts argue that this data is a poor replacement for the gold-standard economic indicators that the federal government typically releases.
Now, the shutdown has reached the tipping point. This lack of recent labor data, economists are warning, is in keeping with a host of other ominous indicators of economic weakness. Contrary to all the doom and gloom, the stock market is exhibiting remarkable strength hidden in plain sight. As of writing, the Dow Jones Industrial Average is up 415 points, or 0.9%. Analysts warn that optimism might be short sighted considering the fundamental risks stemming from the risk of a continuing shutdown.
Economic Indicators Vanish
The shutdown has caused a major void in the availability of important economic data, which is of vital importance to investors and policymakers alike. Bill Adams, an unknown economist, articulated the difficulties created by absence of federal data.
“It is more difficult than usual to measure the state of the US labor market, with gold-standard economic indicators produced by the federal government unavailable during the shutdown,” – Bill Adams.
Without access to real-time, reliable information like the unemployment rate, Wall Street is flying blind. The monthly jobs report serves as a vital gauge for assessing labor market health and guiding Federal Reserve policy decisions. The Fed has come to depend on this precise slice of data to guide its economic policies.
In tandem with the ongoing government shutdown is the uncertainty it brings to the health of our economy. Keith Buchanan, senior portfolio manager at Atlanta-based Globalt Investments, pointed out this growing danger.
“We just feel like the market is being a little too sanguine,” – Keith Buchanan.
He warned that the dangers of the shutdown grow every day it continues. He noted, investors should not underestimate the unanticipated future consequences of the policy.
Dependence on Private Sector Data
Wall Street has looked to private sector sources to take its place. Experts say that this so-called Race, Equity, Diversity, Inclusion (REDI) approach is neither comprehensive nor precise. Paul Donovan, chief economist at UBS Global Wealth Management, recently likened private data to a straw man argument.
“Private data is like viewing the economy through a keyhole — clear, but with a narrow field of vision. Official data is like opening the door,” – Donovan.
Looking beyond your usual go-to sources can provide new perspectives. It can just as easily result in highly misleading assumptions about the larger economic picture. Today, the great challenge for economists is knowing how to make robust assessments when they lack all necessary information.
Senior Economic Analyst Mark Hamrick emphasized the particularly bad timing of this shutdown.
“There’s no good time for a shutdown, but this one is particularly ill-timed. The lack of updated labor data coincides with other signs of fragility in the economy,” – Mark Hamrick.
This has some analysts sounding the alarm mostly because of absence of government report. They caution that other warning signs point to markets being too rosy.
The Risks of Inaction
As days stretch into weeks in this federal government shutdown, worries about its long-term impacts only intensify. José Torres, an economist, discussed how the level of uncertainty about economic conditions has dramatically increased.
“It generates an uptick in uncertainty, because we’re not getting the consistent economic clues that we’re used to,” – José Torres.
With no end in sight for the shutdown, the economists counsel investors to be careful. BPC Senior Fellow Paul Christopher provided advice on dealing with these stormy seas.
“We do not know how long the shutdown will last, but our guidance remains to look through the event to what we expect will be the main drivers of the economy and investment returns through the next 12-15 months,” – Paul Christopher.
Needless to say, investors should brace themselves for greater volatility as they grapple with an economic landscape ever more defined by uncertainty and the lack of full information.