The still-running government shutdown has put a pall over Wall Street. In their place, investors are now without critical indicators of the economy’s health. The impasse in Congress drags on, while vital federal information has vanished. This enormous data blackout severely distorts long range economic forecasting and creates many challenges in determining where to make investments. Analysts and investors both are becoming more and more concerned about the fragility of our economy. This is a pressing concern, all the more so given the absence of timely labor statistics.
The Bureau of Labor Statistics (BLS) produces a monthly jobs report. Also known as the jobs report, this monthly snapshot is a key measure of the labor market and national economy. Because of the government shutdown, this report won’t see the light until the shutdown ends. As a result, Wall Street is sailing in deep blue ocean without knowing what the unemployment rate or relative strength of the labor market looks like.
Impact of Data Blackout on Economic Indicators
Now, the shutdown leaves a gaping hole in the information accessible to economists and investors. According to Bill Adams, an economist at Comerica Bank, “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.” This lack of data is alarming in itself, as it occurs amidst other warning signs that point to an increasingly tenuous economy.
Keith Buchanan, senior portfolio manager at Globalt Investments, warned of the growing dangers of the shutdown. He stated, “We just feel like the market is being a little too sanguine.” As an example, Wall Street is using partial private sector estimates to fill the void caused by the absence of official economic data. Buchanan has called this information woefully insufficient. Private data, which is akin to looking at the economy through a keyhole—very sharp, but with limited field of view. It’s the Pandora’s box of official data, but once you open the door,” said Paul Donovan, chief economist for UBS Global Wealth Management.
Even economists are concerned about what continued dysfunction, or worse yet, paralysis in Washington could mean for our economy. This current shutdown has created a new level of uncertainty, and many analysts are advising a wait-and-see approach. José Torres, an economist at Interactive Brokers, noted, “It generates an uptick in uncertainty because we’re not getting the consistent economic clues that we’re used to.”
Wall Street’s Response to Economic Instability
Despite the chaos unleashed by the shutdown, Wall Street has been pretty stable in reaction during the last couple of trading days. On Friday morning, the DJIA was up 415 points or 0.9%. It seemed to do so all while brushing aside the increasing alarm over the impending shutdown. As exciting as this prospect sounds, some experts warn that optimism is potentially misplaced.
Mark Hamrick from Bankrate remarked, “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.” The confluence of these factors may be a recipe for heightened volatility in financial markets if and when investor confidence begins to erode.
Paul Christopher, head of global investment strategy at Wells Fargo Investment Institute. He advises clients not to get distracted and to continue taking a long-term approach to investing, despite today’s uncertainties. He stated, “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.”
Broader Implications of Government Shutdown
The ramifications of plugging up the government shutdown go far beyond Wall Street. Flood insurance and rural home loans are heavily affected. That would have some downstream impacts for a number of industries related to these programs. If those critical services come to a standstill, public confidence in our economic stability will be further eroded.
As market participants navigate this complex landscape, they remain vigilant for any signs that could indicate shifts in economic health. Accurate assessments depend on trustworthy data. Without it, we can’t know if the recent run up in stock prices is sustainable or simply a temporary reprieve from a return to more underlying economic realities.