How Can You Run the Economy Without Any Data?

The government shutdown means no federal reports about inflation, employment, and a raft of other crucial metrics. Look out for uninformed decision-making.

Children race while crowling with blindfolds on. 
National Journal
Patrick Reis
Oct. 10, 2013, 5 p.m.

Law­makers are walk­ing a dan­ger­ous path in the debt-ceil­ing stan­doff, and thanks to the gov­ern­ment shut­down, they’re walk­ing it in the dark.

When Re­pub­lic­ans last danced with de­fault in 2011, they did so ac­com­pan­ied by a steady stream of fed­er­al data to keep them ap­prised of the eco­nomy’s pro­gress. But this time, the gov­ern­ment eco­nom­ists and ana­lysts who pro­duce that data are fur­loughed, leav­ing Wash­ing­ton and Wall Street un­able to ac­cur­ately judge the health and value of the Amer­ic­an eco­nomy.

The first big, mar­ket-sens­it­ive re­port that nev­er showed up was last week’s Septem­ber jobs re­port. But it’s hardly the only one. Since the shut­down began Oct. 1, the fed­er­al gov­ern­ment has been un­able to is­sue one Census Bur­eau trade re­port, the bur­eau’s re­tail-sales re­port, a Labor De­part­ment re­lease on im­ports and ex­ports, the pro­du­cer price in­dex, and in­vent­or­ies data. Next up: the closely watched in­fla­tion as­sess­ment known as the con­sumer price in­dex (a re­port from the Bur­eau of Labor Stat­ist­ics that tracks the value of Amer­ic­ans’ paychecks) and data on home build­ing that can of­fer an early sign of com­ing booms or busts.

Wait, there’s more — and it’s worse. Next week is when the Census Bur­eau and BLS would be busy col­lect­ing data to meas­ure jobs and un­em­ploy­ment in Oc­to­ber, but be­cause the gov­ern­ment is shuttered, there will prob­ably be a two-month dis­rup­tion in know­ledge on the health of the job mar­ket. It would also be crunch time for eco­nom­ists at the Bur­eau of Eco­nom­ic Ana­lys­is, who are work­ing to de­liv­er the gross do­mest­ic product es­tim­ate by Oct. 30. “We are los­ing touch,” says Keith Hall, a former BLS com­mis­sion­er. “Good, com­pre­hens­ive data make de­cisions bet­ter and help people make few­er mis­takes. As this goes on, I think there’s a real chance of mis­takes.”

It’s not just Con­gress that will suf­fer for fly­ing blind: Fed­er­al data un­der­pin de­cisions that af­fect every as­pect of Amer­ic­an eco­nom­ic life, from Wall Street and the Fed­er­al Re­serve to farm fields and gar­age-based tech start-ups. (De­mand for this stuff trickles down from white-shoe banks and up from pub­lic high schools: The single most-viewed in­form­a­tion on the BLS web­site has al­ways been the oc­cu­pa­tion data, Hall says, a fa­vor­ite of high school guid­ance coun­selors look­ing to get their stu­dents off to a good start in the job mar­ket.)

But per­haps most im­port­ant, the re­ports help keep the glob­al fin­an­cial sys­tem re­li­ably func­tion­al. While miss­ing a week of num­bers is not apo­ca­lyptic, busi­ness lead­ers will get nervous if the data black­out con­tin­ues. “It really para­lyzes de­cision mak­ing,” says Joseph La­Vor­gna, chief U.S. eco­nom­ist for Deutsche Bank. “In the ab­sence of the fed­er­al re­ports, people have to rely on lower-qual­ity in­form­a­tion, and they likely don’t trans­act as much, they don’t in­vest as much.” How does a bank hedge against a subprime-mort­gage crisis when it can’t know how many risky home loans were is­sued?

The sud­den va­cu­um comes at a par­tic­u­larly in­op­por­tune time, as Wash­ing­ton’s dual crises have the po­ten­tial to drive ma­jor changes to the U.S. eco­nomy — and drive them quickly. This has happened be­fore. In 2011’s debt-ceil­ing battle, the stock mar­ket, see­ing a de­fault threat in the United States and a sov­er­eign-debt crisis in Europe, plunged as the Aug. 2 debt-ceil­ing dead­line ap­proached and Wash­ing­ton re­mained dead­locked. The Dow Jones in­dus­tri­al av­er­age began slid­ing Ju­ly 22, and the losses wer­en’t erased un­til this Janu­ary. (See “Break­ing Bernanke’s Heart.”)

So far, Con­gress has been get­ting mixed feed­back on the eco­nom­ic con­sequences of its brink­man­ship. Stock in­dexes haven’t re­peated their 2011 plunge yet, but buy­ers are flock­ing to Treas­ury bills, a stable but low-yield as­set whose re­newed pop­ular­ity sug­gests that in­vestors are get­ting in­creas­ingly nervous. Mean­while, on con­sumer con­fid­ence, the con­sequences are as clear as they are dis­cour­aging: A Gal­lup Poll re­leased last week found con­fid­ence had cratered since the shut­down, fall­ing to its low­est level since 2009, when Amer­ic­ans were ex­per­i­en­cing mass lay­offs and the fin­an­cial crisis put the eco­nomy on the brink of col­lapse.

None of these sig­nals come close to ad­equately re­pla­cing fed­er­al re­ports on the eco­nomy’s un­der­ly­ing fun­da­ment­als. “It’s def­in­itely a par­tial sub­sti­tute,” says Tara Sin­clair, a George Wash­ing­ton Uni­versity eco­nom­ist. “We all look at the gov­ern­ment num­bers as the gold stand­ard. Some of these private-sec­tor re­ports come in more quickly, but then they have to go back and bench­mark to the gov­ern­ment num­bers.”

Some data re­main avail­able — the Treas­ury De­part­ment is still is­su­ing the Daily Treas­ury State­ment, for ex­ample. But it’s not nearly enough to flesh out a pic­ture of the state of the U.S. eco­nomy. Even the still-op­er­at­ing Fed­er­al Re­serve will have a prob­lem ana­lyz­ing be­cause much of its in­put comes from data pro­duced by fed­er­al agen­cies.

That means politi­cians and in­vestors are left to stitch to­geth­er scraps of in­form­a­tion and guess­tim­ate the eco­nomy’s size and well-be­ing, cre­at­ing the pos­sib­il­ity (prob­ab­il­ity, even) that a siz­able gap emerges between per­cep­tion and real­ity. And the longer the gov­ern­ment is shut down, the wider that gap could grow.

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