The U.S. Department of Labor will release September's non-farm payroll data this Thursday. Although this is almost a month and a half later than originally scheduled, this belated data may still be significant for financial markets— it will mark the imminent end of the official data drought caused by the 43-day federal government shutdown in the United States…
Due to a lack of statistical data, since late summer, the Federal Reserve, businesses, policymakers, and investors have been largely unaware of inflation, job creation, GDP growth, and other indicators of the health of the U.S. economy.
In a commentary last Friday, Jefferies economists Thomas Simons and Michael Bacolas wrote that more than 30 reports from the U.S. Bureau of Labor Statistics, the Bureau of Economic Analysis, and the Census Bureau were delayed during the government shutdown due to the political gridlock.
In addition to the non-farm payrolls report, Thursday also saw the release of the highly anticipated weekly initial jobless claims data. The U.S. Department of Labor had not released its weekly jobless claims report for seven consecutive weeks. This report is often seen as a potential early indicator of the labor market's direction.
During this longest government shutdown in history, the U.S. Department of Labor only released the September Consumer Price Index (CPI) on October 24—the most commonly used measure of inflation. The Trump administration made an exception for this report because of its importance: it is used to calculate the annual cost-of-living adjustments for tens of millions of Americans receiving Social Security and other federal benefits.
The timing of the disruption to federal economic statistics over the past month has been extremely awkward. President Trump's policies—including far-reaching and ever-changing import tariffs and the large-scale deportation of undocumented workers—are creating significant uncertainty for the U.S. economic outlook.
The US economic situation has also sent conflicting signals: economic growth appeared robust in the middle of the year, and the unemployment rate remained low; however, job growth momentum weakened, and the inflation rate remained high—still above the Federal Reserve's 2% target, partly due to the impact of Trump's tariff policies.
Jefferies' Simons predicts that the September jobs report will show 65,000 new jobs added that month—a small increase, but still higher than August's 22,000. He also believes the unemployment rate will remain low at 4.3%.
The probability of a December rate cut is decreasing, and investors are eager for new data.
The lack of official U.S. data in recent weeks has gradually triggered panic on Wall Street and deepened the division among Federal Reserve officials over whether to cut interest rates for the third consecutive time at the next meeting in December.
Last week, several Federal Reserve officials, especially regional Fed presidents, stated that a lack of data was one of the reasons they might support a pause in further rate cuts. Meanwhile, according to the CME Group's FedWatch Tool, interest rate market traders now expect a 44% probability of a Fed rate cut in December —a stark contrast to last month's Fed decision, when market participants were almost certain that three rate cuts this year (including a December cut) were a certainty.
“We have no idea how things will turn out,” said Krishna Guha, vice president of Evercore ISI, referring to the Federal Reserve’s December interest rate vote.
With signs of a weakening U.S. labor market and the initial impact of Trump's tariffs on inflation less than many feared, the Federal Reserve has cut borrowing costs by 25 basis points in each of its last two policy meetings. However, the October vote saw a rare three-way split: Fed Governor Miranda, a Trump ally, supported Trump's call for a significant rate cut—a direct 50 basis point reduction—while Kansas City Fed President Schmid wanted to keep rates unchanged.
Federal Reserve Chairman Jerome Powell warned after last month's decision that a December rate cut was not a "certainty," and several regional Fed officials who did not participate in the vote later said they disagreed with last month's decision to cut rates.
Barclays bank Economist Jonathan Millar said, "In our view, the outcome of the December meeting is likely to be as contentious as Powell described at his October press conference."
Therefore, the new reports on employment and inflation in the coming weeks will be of paramount importance to the Federal Reserve , as the new data could help resolve the differences between those who support and oppose further rate cuts. (JPMorgan Chase) "As economic data is released, the labor market may show more stability," said Priya Misra, portfolio manager at an investment management firm. "At that time, the market may further reduce the likelihood of a December rate cut, and volatility may increase accordingly."
Jack McIntyre, portfolio manager at Brandywine Global Investment Management, noted, "While it doesn't pose a major problem yet, the market is increasingly concerned that the Federal Reserve might forgo a December rate cut based on the timeliness and quality of economic data." He added that, combined with the declining yield trend, "this makes us inclined to maintain a neutral allocation to U.S. Treasuries."
Of course, even if the government reopens, some key indicators that were completely unable to be compiled during the shutdown may take several weeks to fully recover. Earlier this week, White House chief economist Kevin Hassett said that the October jobs report, originally scheduled for release on November 7, will ultimately only include partial data.
The U.S. Bureau of Labor Statistics likely has enough business survey data to calculate the number of jobs added or lost last month. Most of this data was submitted electronically. However, another household survey used to calculate the unemployment rate was not conducted during the pandemic lockdowns. Therefore, for the first time in 77 years, the Bureau of Labor Statistics may be unable to calculate the October unemployment rate.
Previously, other White House officials had also stated that a CPI report would not be released in October due to the inability to collect data caused by the government shutdown. This will pose a challenge to the Federal Reserve, which is trying to determine whether inflation will rise back to 2%.
(Article source: CLS)
