MNI DATA ANALYSIS: US Shutdown Impact Felt Widely Across Data

By Kevin Kastner

     WASHINGTON (MNI) - As the partial U.S. government shutdown lingers on, its

impact on economic data will become more pronounced.

     Analysts expect the impact to fourth quarter GDP to be minimal, possibly

less than 0.1 percentage point, as the shutdown only encompassed the last week

of the year -- a week that would have been slow in any case due to the Christmas

holiday. The first estimate of fourth quarter GDP growth was scheduled to be

released Jan. 30 thought that looks increasingly unlikely unless the shutdown

ends quickly.

     The impact on first quarter growth is expected to be much larger, with

estimates varying between 0.3 to 0.5 percentage point depending on the length of

the shutdown. In addition to the direct impact on government spending, there are

indirect impacts to consumption as the 800,000 workers displaced by the shutdown

remain unpaid and government contractors are sidelined.

     The impact is likely to be smaller than in previous shutdowns, however, as

the majority of the government remains operational, particularly the relatively

large Defense Department. Defense spending is a large part of the government

spending component of GDP and continues even through the shutdown.

     Additionally, once the shutdown ends, a rebound in the second quarter is

likely as activity returns to normal and unpaid government workers receive back

pay.

--DATA RELEASE DELAYS

     Data reports from the Commerce, Treasury, and Agriculture departments

continue to be delayed, as the partial shutdown has run through nearly a full

data cycle. 

     To date, the following releases have not occurred as scheduled:

     --From the Commerce Department: new home sales, advance trade and

inventories, construction spending, factory shipments, orders, and inventories,

international trade, wholesale trade, retail sales, business inventories, and

housing starts 

     --From the Treasury Department: the monthly budget statement and TICS

     --From the USDA: monthly statistics on crop plantings, production, and

prices.

     These data will not be released until after the shutdown ends and even then

will likely be postponed past their schedule dates as work on those release was

not performed during the shutdown.

     In addition to the above data points, the upcoming releases of durable

goods orders and shipments, GDP, and personal income and consumption are very

likely to delayed.

--DATA-DEPENDENCY HANDCUFFFED

     The Federal Reserve has recently shifted toward an increased dependence on

data to make its policy decisions, based on meeting statements and speeches by

Federal Reserve official. The lack of real government data has left this

approach up in the air and raised the importance of private source data and the

Fed's own Beige Book, industrial production, and regional data to fill the gap.

     To data, regional conditions data have been mixed, the industrial

production report showed a solid gain, and the Beige Book pointed to modest

inflation growth, but also less optimistic economic growth assessments. The

FOMC's favorite inflation measure, the core PCE price index, was not due to be

released before the next FOMC meeting in any case, but now will be even further

delayed.

--EMPLOYMENT DATA PARTIALLY IMPACTED

     Even with the partial government shutdown in effect, data from the Labor

Department continues to be released. And no data will hold more importance for

the Fed than the Feb. 1 release of the January employment report. While that

release comes after the Jan. 29-30 meeting, it will likely weigh on members'

minds for what could happen. 

     After a very strong showing in the December report, January payrolls,

hourly earnings, and hours worked are likely to be adversely impacted by the

shutdown. The BLS posted the expected impact of the shutdown on BLS data on

their website at

https://www.bls.gov/bls/does-the-partial-government-shutdown-impact-bls-data-or-

release-dates.htm.

     The BLS noted that federal workers who were retained to work without pay

would be counted as working in the payrolls survey. However, those who are not

working, a larger portion of the furloughed workers, will not be counted as on

the job. The results will be a significant decline in federal government workers

in the report. The private payrolls category, which excludes government workers,

is likely to be impacted as well by the contractors that are not working. 

     If legislation is later passed to pay back the government workers who were

furloughed, they will be added back into the employment counts, BLS said. This

would most likely result in revisions to previous months.

     While hours worked and hourly earnings for government workers are not

counted, the impact of the shutdown could be seen for contractors and sectors

that support government work.

     The household survey, conducted by the Census Bureau, part of Commerce, is

not impacted as funding for the work comes from BLS. 

--MNI Washington Bureau; tel: +1 202-371-2121; email: kevin.kastner@marketnews.com

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