HOW BIG A DATA MESS WILL THE GOVERNMENT SHUTDOWN CREATE?

With the U.S. government shutdown in its 22nd day, Goldman Sachs economists and strategists looked to past shutdowns for help estimating how problematic it could be for October data collection.

Since the collection of nearly all Federal economic data has been postponed until the government reopens, they note that the impact on the quality and availability of October’s employment and Consumer Price Index (CPI) data will depend on how much data the government can collect retroactively and “whether delayed collection could introduce distortions.”

Regarding employment data, they suggest that since “responses are regularly received late and, crucially, late submissions have not differed meaningfully from on-time submissions in October in the past,” the shutdown “should have a limited impact on the quality of the October payrolls data.”

But they see a potentially bigger impact on the quality of the household survey. They noted that interviews for the household survey covering the period October 12-18 should have started this week. So when the shutdown ends the Bureau of Labor Statistics will have three options: 1) to conduct interviews and ask about the original reference week or 2) to shift the reference week so the time between the reference week and the interview is normal or 3) to “skip collecting data for October.”

After the 1995-1996 and 2013 shutdowns, they note that the BLS chose the first option as they saw potential seasonal distortions from moving the reference week as “more problematic than the potential recall bias introduced by having more time pass between the reference week and interviews.”

But the authors note that “the longer the shutdown lasts, the greater the risk that the BLS forgoes collecting October data.”

They suggest that the shutdown appears “most problematic for the quality of the CPI.”

While prices taken from alternative data can be collected retroactively for 10-20% of the basket, they note that “the vast majority of CPI price quotes are collected by hand.”

So if the government reopens shortly, the BLS could accelerate data collection for the rest of the month, as it did following the 2013 shutdown.

But they suggest that this “would likely worsen the BLS’s already strained data collection efforts and further undermine data quality.”

And if the shutdown lasts through the end of the month and the BLS does not adopt new emergency methods, “it seems unlikely that it could publish the CPI in the usual way because the data would not meet the typical BLS publication standards.”

So the report suggests that while there’s “no perfect alternative” the BLS “could collect some prices retroactively and interpolate other October prices using September and November prices.”

The report had been originally scheduled for October 15.

Meanwhile on Wednesday, ICE cotton futures fell, under pressure from lower sales due to a lack of market data because of the U.S. government shutdown, as traders waited for key supply and demand projections and export updates.

Elsewhere, Kevin Gordon, senior investment strategist at Schwab wrote: “The risk of no data collection is not being priced in … a data desert will eventually starve the economy and market.”

“Additionally, there is a deadweight loss that accumulates, given the potential for contractors to be impacted and the lack of job security for federal employees who are fired. At a time when the base for economic growth is narrowing, this works to depress growth.”

(Sinéad Carew)

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