Data blackout: economists scramble to replace the “gold standard” with alternative data

The erosion of reliable metrics

Economic health is measured by timely, high-quality data. During a shutdown, the agencies responsible for producing these "gold standard" statistics, such as the Bureau of Labor Statistics (BLS) and the Bureau of Economic Analysis (BEA), furlough non-essential staff, halting the collection, processing, and dissemination of reports. Impacts include:

• Delayed and missing reports: Key indicators like the Monthly Nonfarm Payrolls (jobs report) and Retail Sales are being postponed indefinitely. Crucially, as the shutdown extends, the data for the current month, especially for the Consumer Price Index (CPI), could be irrevocably damaged. Much of the pricing data for inflation is collected through in-person surveys; if those surveyors are off, the data for that period is simply lost and cannot be fully recovered after the government reopens.

• Compromised quality: Even when reports are eventually released, the quality is questionable. Statisticians are often forced to use imputation (filling missing data with estimates based on other series) or work with severely reduced response rates, increasing the margin of error and feeding uncertainty into the market.

The Federal Reserve's unprecedented challenge

The data blackout hits at a uniquely challenging time for the Federal Reserve. The Fed is currently focused on navigating a complex economic landscape that requires precise, data-dependent adjustments to interest rates.

In our recent semi annual market update webinar, we discussed the timing of the shutdown and the impact on Fed decision making. The Federal Open Market Committee (FOMC) are making critical decisions about inflation and employment without primary inputs. This compels the Fed to:

1. Work with outdated information: Decisions are based on data that is weeks or months old, potentially misjudging the current status of the labor market or inflation.
2. Increase policy risk: Without reliable facts, the risk of a policy misstep, whether holding rates steady in the face of a weakening jobs market or cutting too aggressively without knowing the true inflation picture, is significantly higher.

Economists scramble for alternative data

Amol Dhargalkar commented that the lack of official metrics has accelerated a trend that economists are "increasingly trying to find alternative data" to "help give a fuller picture." This includes:

• Private payroll data: Utilizing employment reports from large private payroll processors (like ADP) and job posting data from websites. ADP has recently started publishing weekly data to help fill the data gap left by the government shutdown.

• Aggregated data from large investment firms: Private equity asset managers have been sharing data from their portfolio companies relating to inflation and other key metrics.

• High-frequency indicators: Leaning on real-time private credit card and banking transaction data to track consumer spending.

• Anecdotal evidence: Placing greater weight on regional Federal Reserve surveys and direct conversations with corporate executives to gauge on-the-ground business sentiment, a practice the Fed relies on when hard facts are scarce.

While these alternative sources provide some visibility, they are imperfect substitutes for the comprehensive, benchmark statistics provided by the government. This comes at a time when central banks repeatedly stress that their decisions are “data driven,” repeated again this week when the Fed made their announcement on the most recent rate cut.

Yet, when the data itself disappears, policymakers and markets alike are forced to rely on partial signals, anecdotal evidence, and sentiment rather than hard numbers. With Chair Jerome Powell’s comments that a December rate cut is far from a given, policy makers remain challenged to make critical decisions.

The absence of reliable U.S. data doesn’t just cloud the domestic outlook, it injects uncertainty into global forecasts, asset pricing, and interest rate expectations. Until the flow of official statistics resumes, the world’s largest economy is effectively flying blind—and so is everyone watching it.