If October 2013 never happened, economically speaking…

Oct 2, 2013

If October 2013 never happened, economically speaking…

Oct 2, 2013

One of the things the government does — when it’s not shut down — is collect, analyze and publish economic information. Here are some things that won’t get released or collected — at least for as long as the shutdown continues. 

The retail sales report, factory orders, international trade statistics, and what Chris Low, chief economist at FTN Financial, calls “the big daddy of all the economic indicators”: the September employment report. It’s supposed to come out Friday, but as happened the last time the government closed shop in December 1995, the jobs report may be delayed.

All this data is important for investors.

“I think it’s a big jump to say we’re going to miss a huge trend in the pace of recovery by missing just a couple days of data,” says analyst Keith Davis with Farr Miller and Washington.“But if [the shutdown] stretches on for two or three weeks, investment advisors like ourselves are going to be running blind,” he says.

“We’re going to have to make investment decisions without knowing how fast the recovery is going, whether it’s decelerating or accelerating,” Davis adds.

The data vacuum is likely to make markets volatile.

“After a few weeks, it starts creating a lot of uncertainty, and investors will be skittish,” says Chris Thornberg, founding partner at Beacon Economics.

The data that’s not getting collected now, like inflation or jobs for October, may never get collected if the government closure drags on.   

There is non-government data out there, but economist Low says that in the past few months, it has painted a misleadingly strong impression of the economy.

“To some extent, we use data to determine how strong the economy is, and from that market interest rates are determined,” he says. “If we were forced to rely on private sector data, interest rates would be quite a bit higher than they are now.”

In a growing economy, investors would shift away from the safe haven of Treasury bills, so those bond prices would decline, thus raising their yield, or effective interest rate. (Mortgage-backed-securities would then have to compete with that higher yield, and so mortgage rates would have rise. Read more about that dynamic here.)

Typically, the economy doesn’t fluctuate wildly in a short span of time, so a few missed data releases in normal times isn’t the end of the world. 

“The problem,” says Justin Wolfers, a senior fellow at the Brookings Institution and an economics professor at the University of Michigan, “is if we’re about to face abnormal times — and Congress appears to be trying to make times abnormal – we won’t be able to see it immediately obviously in the data and possibly not quickly enough to change course on policy.”

So basically, we can’t tell how bad the government shutdown is for the economy because of the government shutdown.

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