Data blackout clouds economic picture, leaving businesses in shutdown limbo

Banker stock photo with blindfold on and red piggy bank

Photo / Adobe Stock The lack of official economic data during the government shutdown puts businesses, investors and the Federal Reserve at risk of flying blind.

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By Renee Cordes

This Oct. 3 isn't just "Mean Girls" Day for fans of actress Lindsay Lohan, it's also the day the U.S. government would have released its September jobs report if not for the government shutdown.

Good luck finding anything on the website of the Bureau of Labor Statistics.

"Updates to the site will start again when the Federal government resumes operations," the agency says on its home page, last updated Wednesday when the government shut down over an ugly budget spat.

If the stoppage goes into next week, that may also delay the release of monthly reports on the country's trade balance, consumer prices, retail sales and producer prices all originally slated for the next two weeks.

But without clarity on economic growth and inflation, businesses — in Maine and elsewhere — may become more hesitant to invest, hire, or change pricing because planning becomes all the more difficult.

"Businesses use data to shape their expectations about the future," notes Oak McCoy, an economics professor at the University of New England's College of Business.

"It's not just the forecast that matters," he says, "it's the confidence behind it. When confidence in those expectations is strong, firms act decisively. When it weakens, they tend to pull back."

Jason Harkins, executive dean of the Maine Business School and dean of the Graduate School of Business at the University of Maine, cautions that the lack of data will "materially increase" uncertainty in the markets.

"This impacts not only the decision making of individual business owners, but will impact the data that influences decision-making by organizations like the Federal Reserve," he says.

The Fed

The lack of data may also make it harder for the Federal Reserve to steer the economy at what appears to be a critical juncture, with inflation refusing to come down and the labor market showing signs of weakness.

U.S. central bankers are scheduled to meet next on Oct. 28, a little more than a month after reducing the target for the benchmark federal funds rate by a quarter of a percentage point to a range of 4% to 4.25%. At the time, they signaled the possibility of two more cuts this year. That is appearing less likely given the shutdown.

"A decrease is widely expected, but without data, the Fed is likely to hesitate to act at this point in the economy" because "they are conflicted with inflation versus labor markets," says Andrew Silsby, president and CEO of Augusta-based Kennebec Savings Bank.

UNE's McCoy also expects the Fed to leave rates unchanged under the current circumstances.

"In the absence of government data, Fed officials will rely on alternative sources — private surveys, high-frequency indicators and regional Fed inputs," all of which are "imperfect substitutes," he says.

"Unless they clearly justify a change, the Fed is likely to hold its current course, remaining hawkish even as labor conditions soften."

The real danger, McCoy warns, “isn't just missing the data, it's making the wrong move without it. And that could mean reigniting inflation or pushing the economy further into a slowdown."

Keep on truckin'

Silsby is less worried about any immediate danger if interest rates stay where they are.

"To the extent that slight changes in interest rates impact businesses, the shutdown itself won't change most Main Street business," he says.

"If you run a food truck in D.C.," for example, "your business will be materially impacted, but the further you get away from federal facilities, the lesser the impact."

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