The U.S. government shutdown enters its fourth week today. All the while, former President Donald Trump digs in and will not deal or compromise with the Democrats. This current standoff started on October 1. It has profoundly disrupted many mainstream economic measures and injected great instability into all financial sectors.
No doubt it is the shutdown that is directly hurting federal employees and government services. It throws the timing of key economic data releases into chaos. With negotiations stalled, the Republican Party’s proposed stopgap funding bill has failed to garner support from Democrats, further complicating the path to resolution.
Effects of the Shutdown on Economic Releases
The government shutdown has already delayed dozens of critical economic reports that offer a glimpse into consumer behavior and the overall health of our economy. Among these is Monday’s durable goods orders report, which measures new orders placed with domestic manufacturers for delivery of durable goods. On top of that, the advance GDP estimate for the third quarter, set to be released on Thursday, will be impacted, too.
Our consolidated report provides some of the most important metrics such as consumer spending and the core Personal Consumption Expenditures (PCE) price index. The release of these documents is critically important, as they set the tone for fiscal policy and strongly guide market expectations.
Our recent data trends suggest inflation continues to drop over the last few months. Though it is still well above the Bank of England’s target of 2%. Commercial analysts especially are keenly attuned right now to signs that persistently high economic conditions may be forcing central banks to alter the course of normalization.
Economic Developments Beyond US Borders
At the same time, foreign economic conditions are decidedly mixed. In the Eurozone, the economy expanded by only 0.1% quarter-on-quarter. All of this expansion happened during the three month period leading up to September. This perfunctory growth is enough for industry experts to worry about the region’s recovery path in the face of a still-volatile world economy.
Thursday, flash Q3 GDP readings to be released. Then on Friday, we expect the preliminary Consumer Price Index (CPI) estimates for October to come in right behind them. These data points would provide central banks with important political context. Armed with this information, they can better chart a course for their monetary policies as conditions change economically.
In Australia, all economic indicators point to a tightening labor market and increasing inflationary pressures. The unemployment rate skyrocketed again to 4.5% in September, foreboding dark clouds on the economic horizon. Recent monthly inflation figures were approaching the inflation target’s upper band of 3.0%, fueling expectations of near-term shifts in monetary policy.
Central Banks Adjusting Course
Given these economic realities, central banks are about to move. The RBA should pull the trigger on that cut when it meets in November. This decision is largely a result of pressures from high inflation and an economic environment with one of the highest levels of uncertainty.
In neighboring Canada, the Bank of Canada (BoC) launched its most recent rate-cutting cycle of last September. It plans to reduce rates again in October, and potentially again after that. This trend is just one example of a larger, global pivot among central banks as they try to balance supporting economic growth with controlling inflation pressures.
The Bank of Japan (BoJ) is expected to maintain its current interest rates, but may hint at a future shift towards tightening policy. While global markets continue to digest these changes, investors are still on the lookout for further central bank cues that might change their game plans.