tl;dr
As the government shutdown halts official economic reports, the Federal Reserve is increasingly relying on private-sector data to navigate inflation, job market trends, and monetary policy. This shift highlights the fragile balance between limited government oversight and the growing influence of pr...
The Federal Reserve’s reliance on private-sector data has become a critical lifeline as the government shutdown disrupts the flow of official economic reports. With the Bureau of Labor Statistics and other federal agencies unable to publish their usual analyses, Fed officials are turning to alternative metrics to gauge the health of the economy. This shift underscores the challenges of navigating a complex economic landscape without the traditional benchmarks, while also highlighting the growing role of private data providers in shaping monetary policy decisions.
The most recent official reports painted a concerning picture: inflation had risen, and the job market showed signs of weakening. These trends raised fears of a potential return to stagflation—a scenario where stagnant growth collides with rising prices. In response, the Fed has been closely monitoring a patchwork of private-sector indicators, which, while not as comprehensive as government data, offer glimpses into key economic drivers.
One of the most scrutinized metrics is state-level initial jobless claims. Although the Department of Labor has halted its weekly reporting, firms like Goldman Sachs and J.P. Morgan have estimated that 219,000 people filed for unemployment in the latest week, a slight decline from the prior period. Fed Governor Lisa Cook noted that while the job market remains “solid,” it has “continued to weaken” since the last official report in August, with the unemployment rate climbing to 4.3% from 4% in January. This suggests a labor market that is softening but not yet in freefall.
The slowdown in hiring is also reflected in private job postings. The Indeed Job Postings Index fell to its lowest level since February 2021, signaling a sustained decline that began in mid-2022. Similarly, ADP’s private-sector employment report showed a modest gain of 42,000 jobs in October, far below the typical monthly pace of job creation. While this number slightly exceeded the 35,000 jobs lost in the previous two months, it underscores the fragility of the labor market. The Fed will see one more ADP report before its next policy meeting in December, offering a final snapshot before potential rate decisions.
Inflation, another pillar of the Fed’s dual mandate, remains a mixed bag. PriceStats, a private data provider, reported a 2.66% annual increase in its index in September, marking the highest level since 2023. This contrasts with the Consumer Price Index (CPI), which rose 3% in the same period—the highest since January. Meanwhile, Adobe’s digital price index revealed a different trend: online prices fell 2.9% year-over-year in October, marking 26 consecutive months of deflation. These divergent signals complicate the Fed’s efforts to assess inflationary pressures, as private data providers offer conflicting narratives.
The Fed’s own Beige Book, a report based on anecdotal insights from regional banks, also points to a slowing job market. The latest edition, released in October, noted that hiring remained sluggish, with employers caught in a “low-hiring, low-firing limbo.” The next Beige Book, due on November 26, will be closely watched for further clues about the economy’s trajectory.
While these private data sets provide valuable insights, they lack the granularity and comprehensiveness of government reports. Fed Chair Jerome Powell acknowledged this limitation, stating that the data “doesn’t replace the government data, but it gives us a picture.” However, without official reports, the Fed must rely on these alternatives to make informed decisions. The stakes are high: a misstep in policy could exacerbate inflation or trigger a recession, while overreaction could stifle growth.
As the government shutdown continues, the reliance on private-sector data raises questions about the long-term implications for economic oversight. While these metrics fill a critical gap, they also highlight the vulnerabilities of a system that depends on timely, transparent data. For now, the Fed walks a tightrope, balancing uncertainty with the need to maintain stability in an economy already under strain.
For investors and policymakers alike, the situation underscores the importance of staying attuned to evolving data sources and the signals they convey. As the next Beige Book and ADP report approach, the market will be watching closely, hoping for clarity in a time of unprecedented uncertainty.