This post was contributed by a community member. The views expressed here are the author's own.

Health & Fitness

David Joy: Measuring the impact of the shutdown - backlog of data will provide clues

With the deal to reopen the federal government in hand, the stream of government economic data will once again begin to flow. Beginning this week, the backlog of delayed reports will start to be cleared.

It is uncertain whether the decayed timeliness of the initial batch of data will cause investors to discount their importance. For example, the September employment report, originally scheduled for release on Oct. 4, will be released on Tuesday, Oct. 22, almost three weeks late. For the record, Wall Street is expecting that 180,000 new non-farm jobs were created and that the unemployment rate stayed at 7.3%.

The problem is that the September report will tell us nothing about the impact of the government shutdown, which began on Oct. 1. The other problem is that the November employment conditions report is now scheduled to be released on Nov. 8. And although that, too, is a delay from its original release date of Nov. 1, it is only two and a half weeks later than the September report. So, the September report will be a curiosity. It will fill in the blank that currently exists in our knowledge of current conditions in the labor market, but unless it tells us something completely unexpected, its informational content will tend to be discounted.

Find out what's happening in Scarsdalewith free, real-time updates from Patch.

Of course, the health of the labor market is extremely important to the Fed, and to the extent that the September report provides some insight into current conditions free of the distortion of the shutdown, it may have some value. But the shutdown did occur, and will have some impact on labor, even beyond the temporarily furloughed government workers. So, how much valuable insight the September report will offer is questionable.

That brings us to the November report. The one-week delay in its release will be a relatively minor inconvenience, so timing is not the problem. The problem will be the noise created by the shutdown. While adjustments to account directly for the shutdown can be made, the uncertainty it may have created throughout the broader economy, and what impact that may have had on hiring decisions, will be more difficult to quantify, suggesting that we may not get a “clean” look at the labor market until Dec. 6, when the November report will be released.

Find out what's happening in Scarsdalewith free, real-time updates from Patch.

However, even then there will be an additional problem. As research firm ISI reports, when the government shut down in 1995, it took six weeks for the economy to recover. That shutdown was a little longer than this one, but there is clearly an impact. Since the deal to end the shutdown came on Oct. 17, that impact may be at least partially reflected in the November data. So, even on Dec. 6, we may still not know the true condition of the labor market.

What makes this data fogginess more intriguing is the recent behavior of equity markets. They continue to push higher, as though none of this matters. Markets seem to be looking through the distraction of the shutdown, and any temporary impact it may have, to an environment of low inflationary growth. Another plausible explanation may be that the data does matter, but all the uncertainty and any tangible damage done to the economy will keep the Federal Reserve flooding the system with more liquidity for longer, and that trumps any near-term concerns.

Many of the same questions surrounding the economy could be applied to the earnings situation. Even if third quarter numbers are decent, how representative will they be of the fourth quarter?  Whatever the case, the S&P 500 rose 2.4% last week, bringing its year-to-date gain to an impressive 22.4%. Cyclical groups responded well to the deal to reopen the government.

Financials were a primary beneficiary. Overseas markets also reacted favorably. The Stoxx 600 index of European equities surged 3.5% on the week, with most of the rise coming in the two days following the shutdown deal. It has gained 18.5% since the start of the year. Emerging markets got into the act as well, only to a lesser extent. The MSCI EM index rose 1.8% for its third straight weekly gain, although it remains 1.2% lower on the year.

The relative importance of stale economic data and third quarter earnings will both be answered this week. There are too many reports to mention, but it will be the outliers that will be the most telling.


Disclosure

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.

The S&P 500 is an index containing the stocks of 500 large-cap corporations, most of which are American. The index is the most notable of the many indices owned and maintained by Standard & Poor's, a division of McGraw-Hill.

The STOXX Europe 600 Index is derived from the STOXX Europe Total Market Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of 600 components, the STOXX Europe 600 Index represents large, mid and small capitalisation companies across 18 countries of the European region.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

Investment products are not federally or FDIC-insured, are not deposits or obligations of, or guaranteed by any financial institution and involve investment risks including possible loss of principal and fluctuation in value.

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.

© 2013 Ameriprise Financial, Inc. All rights reserved.

 
We’ve removed the ability to reply as we work to make improvements. Learn more here

The views expressed in this post are the author's own. Want to post on Patch?