Is tonight's non-farm payroll gone again? The U.S. government shutdown continues, making it "increasingly difficult" for the Federal Reserve to cut interest rates in December

The U.S. government shutdown has entered its sixth week, and the Department of Labor will be unable to release the critical non-farm payroll report for the second consecutive month. The economic data vacuum is putting the Federal Reserve's decision on interest rate cuts in December in an unprecedented dilemma.

On November 7, according to media reports, as the shutdown prolongs, economists are concerned that some data from October may never be released, particularly the unemployment rate data that the Federal Reserve is most focused on. Meanwhile, it is not just employment data that is missing.

The White House warned last month that the October Consumer Price Index report may also be unprecedentedly unreleased, as this data requires on-site visits to businesses for collection. This will leave the Federal Reserve lacking an accurate assessment of labor market conditions and unable to evaluate inflationary pressures, plunging it into a decision-making dilemma of "being completely in the dark."

This data crisis has exacerbated divisions within the Federal Reserve. According to a previous article from Wall Street Insight, Federal Reserve Chairman Jerome Powell clearly stated after the October interest rate meeting that without key data, a rate cut in December is not a certainty. Several Federal Reserve officials have unusually expressed their preferences for the next decision six weeks in advance, highlighting internal disagreements.

Currently, the futures market shows that investors still expect the likelihood of a rate cut in December to be slightly above 50%, and private institutions have provided alternative data. However, economists emphasize that these data can never replace official statistics in terms of scope and reliability. Data quality issues may further entrench Federal Reserve officials' positions between hawks and doves, making decision-making even more challenging.

Data Black Hole: October Unemployment Rate May Be Permanently Missing

The U.S. Bureau of Labor Statistics collects employment report data during the week that includes the 12th of each month. The report consists of two parts: the establishment survey generates non-farm payroll numbers, while the household survey calculates the unemployment rate.

"I don't think the household survey data will be released," said Ron Hetrick, a senior labor economist at the data company Lightcast.

The crux of the issue lies in the differences in data collection methods. Businesses typically retain payroll data and can report it online, but tracking household respondents—who require on-site visits and phone interviews—is much more difficult, as they must recall their employment status during a specific week.

Michael Reid, a senior U.S. economist at RBC Capital Markets, stated:

"The longer it drags on, the lower the reliability of the responses. At some point, the Bureau of Labor Statistics may choose to abandon collecting October data and focus on November data, which means the October unemployment rate will never be released."

Andrew Husby, a senior U.S. economist at BNP Paribas, pointed out in a recent client report that even if the report is released, it will be filled with caveats— including the uncertainty that approximately 650,000 temporarily laid-off federal employees could raise the unemployment rate by 0.4 percentage points. According to estimates from the Congressional Budget Office, this would severely distort the true meaning of the data

Unprecedented Policy Blind Spot

The longest government shutdown in U.S. history has now entered its second month, leading to a complete halt of government data, making it difficult for policymakers, investors, economists, and ordinary Americans to clearly understand the economic situation.

Former Bureau of Labor Statistics Director Erica Groshen stated:

"Any monthly data that includes household surveys may have gaps. The unemployment rate from the Current Population Survey is likely to be unavailable as well."

Goldman Sachs economist Ronnie Walker outlined three options for the Bureau of Labor Statistics last month: conduct interviews and ask about the situation during the initial survey period in October; conduct interviews but adjust the reference week to normalize the interview time interval; or skip data collection for October.

Walker noted that after the shutdowns in 1995-1996 and 2013, the Bureau of Labor Statistics chose the first option because it believed that the potential seasonal distortions from moving the reference week were more problematic than the recall bias from extending the time interval.

"However, the longer the shutdown lasts, the greater the risk that the Bureau of Labor Statistics will abandon data collection for October."

The White House warned last month that the October consumer inflation report may be unable to be released for the first time in history due to the shutdown, as the report requires field data collection.

Federal Reserve officials must weigh the balance between a weakening labor market and ongoing inflation risks in this unprecedented information vacuum—an issue that has already caused divisions among them.

Private Data Struggles to Fill the Gaps

In the absence of official data, the market has turned to private sector data. According to an article from Wall Street Journal, data released by ADP this Wednesday showed that job growth in October remained weak and narrowly concentrated in the education and healthcare sectors.

However, Federal Reserve officials also cited weekly unemployment insurance claims data—which is still collected by state governments during the shutdown—that has not shown any meaningful growth.

Bloomberg Economics has constructed a labor market index using available alternative labor-related data. Economists Stuart Paul, Andrej Sokol, and Anna Wong stated:

"The index indicates that the U.S. labor market continues to cool, although at a slightly slower pace."

However, official statistics on inflation are harder to replace due to a relative lack of alternatives from the private sector.

This week, in the $29 trillion U.S. Treasury market, data from ADP Research, Challenger, Gray & Christmas Inc., and Revelio Labs pushed yields in different directions, highlighting the tricky situation everyone faces with these conflicting data points.

Columbia Threadneedle Investment portfolio manager Ed Al-Hussainy stated, "The gold standard remains unemployment insurance claims and the official unemployment rate." Michael Reid, a senior U.S. economist at RBC Capital Markets, stated: "This could exacerbate the divisions. The quality of government data will be questioned."

Data quality issues will lead those officials more concerned about the labor market to push for more rate cuts, while those more worried about price pressures will advocate for pausing rate cuts, with both sides becoming more entrenched in their positions.

Intensifying Divisions Within the Federal Reserve

Data gaps are deepening the already existing policy divisions within the Federal Reserve. Powell managed to forge a consensus for rate cuts at the October meeting, despite the lack of the latest employment data at that time. However, he quickly warned that doing so again in December "would not be so simple."

This warning was subsequently reinforced by several policymakers who publicly expressed their views. They took the rare step of signaling their preferences for the next decision nearly six weeks in advance.

According to the original schedule, the Federal Reserve will theoretically have the latest inflation data at the meeting on December 9-10, but may lack reliable employment data—this is exactly the opposite of the situation at the October meeting.

Powell framed the debate over the December decision as "primarily about the true state of the labor market," as concerns about excessive tightening of monetary policy were raised due to a sharp slowdown in summer hiring, which drove the rate cuts in September and October.

"For some members of the committee, it may be time to step back and see if there really are downside risks in the labor market," Powell said at a press conference on October 29