For the third day the federal government has locked out its employees. The military, homeland security and others remain open., a photo by Pan-African News Wire File Photos on Flickr.
October 22, 2013
Shutdown Will Hinder True Gauge of U.S. Economy
By NELSON D. SCHWARTZ
New York Times
Like a driver with a broken speedometer, economists are being forced to come up with new ways to gauge the economy’s strength as the aftereffects of the government shutdown distort the usual metrics.
Unlike the delayed jobs data released on Tuesday, figures for unemployment and job creation in October and November, experts say, will be skewed as hundreds of thousands of government workers and contractors disappear from the work force and then reappear in next month’s survey.
And from the canyons of Wall Street to the corridors of the Federal Reserve, that lack of data will have real-world ramifications.
One reason the Fed is likely to wait until early 2014 to begin easing back on stimulus efforts is that policy makers there simply will not know if the labor market is gaining or losing strength before then. Not until December will the monthly jobs survey be free of the shutdown static, and that report does not come out until early January.
The September jobs report was disappointing, with the economy adding 148,000 new jobs instead of the expected 185,000, but stocks rose on anticipation that Fed stimulus efforts would continue well into 2014.
The Fed’s purchase of $85 billion in bonds a month has buoyed Wall Street this year, because the flood of stimulus money makes riskier assets more appealing while keeping interest rates low and reducing borrowing costs. The benchmark Standard & Poor’s 500-stock index is up more than 23 percent so far this year.
On Tuesday, the S.& P. 500 index rose 10.01 points, or 0.6 percent, to 1,754.67. The Dow Jones industrial average gained 75.46 points, or 0.5 percent, to 15,467.66. The Nasdaq composite index increased 9.52 points, or 0.2 percent, to 3,929.57. In the market for government bonds, the price of the benchmark 10-year Treasury note rose 25/32 to 99 29/32, and its yield fell to 2.51 percent from 2.60 percent late Monday.
With traditional yardsticks like the jobs report blurred for the next two months, Ethan Harris of Bank of America Merrill Lynch said he was planning to look more closely at the University of Michigan’s monthly consumer confidence survey to assess the fallout from the shutdown and other trends.
One clue on that front could come Friday when the university will revise its monthly reading for October. The preliminary estimate recorded in the first half of October revealed a decline to 75.2 from 77.5 in September. Economists are expecting a small downward revision in confidence reflecting polling in the second half of the month, so anything more significant will probably get economists buzzing.
Paul Edelstein, director of financial economics at IHS, said those confidence figures could occasionally produce what he calls a “head fake” in terms of whether they translate into lower spending, for example, so he is keeping an eye on data from nongovernment entities, like chain store sales.
Mr. Harris expects economic growth in the fourth quarter of 2013 to run at a 2 percent pace, weighed down by the government shutdown, but to rise to 2.8 percent in the first quarter of 2014 as the fiscal drag from Washington fades.
Other veteran seers are basically waiting until the smoke clears.
“We’re all going to have to calm down and be very patient,” said Julia Coronado, chief economist for North America at BNP Paribas. “It’s going to take a few months to get a good read after all the trauma.”
Even during otherwise-normal survey periods, there are complaints about just how accurate a picture of the economy can be drawn from government figures. For example, out-of-work Americans who give up looking for jobs are no longer counted as unemployed, thus helping to lower the unemployment rate.
Then there are the revisions that take place regularly, which sometimes are huge but come long after initial impressions have been formed.
For example, the number of jobs added in August was revised upward on Tuesday to 193,000 from 169,000 — a difference of 24,000 that now makes August look like an upside surprise in job creation, rather than the disappointment it was reported to be at the time.
In addition, critics on the left complain that the unemployment report understates the true extent of joblessness in the economy, while some on the right have suggested the Bureau of Labor Statistics is manipulating the numbers for political reasons.
The truth, experts say, is that the government’s data set is still the best tool that economists have, whatever the flaws. “Nothing can compare to what we get from the government,” said Augustine Faucher, senior economist at PNC Financial Services Group in Pittsburgh.
Still, Mr. Faucher said he would be looking more closely at measures like the private Institute for Supply Management’s monthly manufacturing numbers, and the economic survey by the Fed’s regional banks, which comes out eight times a year and is known as the beige book.
Alan Greenspan, the former Fed chairman, was famous for watching obscure statistics like rail car loadings, but Mr. Faucher said that as services take up a bigger share of the economy, that kind of number becomes less relevant. “I think qualitative assessments become more important, and I’ll be paying more attention to the commentary in the I.S.M. and the beige book,” he said.
Guy Berger, an economist at RBS Securities, said he would be focusing on data for the housing market, one of the few sectors of the economy to shine in recent years. “Even before the shutdown, we thought housing data would be important, and it’s something that the Fed is also looking at closely,” he said.
Like most economists, Mr. Berger will also be keeping an eye on the usual statistics, however skewed by the shutdown.
“We’re going to look at the same stuff we always do,” he said. “It’s just going to be more murky than usual.”
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