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US policy makers fear flying blind

Ben Bernanke
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Ben Bernanke

A lengthy government shutdown could paralyze U.S. Federal Reserve policy making – including a crucial decision on when to slow its asset purchases – and create ripple effects that make economic data less useful for months or even years to come.

U.S. policy makers fear a continued government shutdown could seriously degrade the quality of economic data and leave them without reliable information until January.

The Fed will rely heavily on government figures to assess when to taper its monetary stimulus from $85-billion-a-month so the loss of data could have big effects on global markets.

(Read more: Obama to Wall Street: This time be worried)

Although the first impact of the shutdown was a delay in jobs numbers for September, which were due for release on Friday, policy makers are more concerned about the integrity of October's data.

Several officials said their greatest fear was that the government would not reopen by October 14, the survey week for the monthly jobs report. The government will release September's number when it eventually reopens but the October data could be lost forever.

(Read more: Futures nudge higher despite day 4 of government shutdown)

Without a prior month for comparison, November data would be hard to compile and interpret, so December data – released in January – would be the next clear reading on how the economy is performing.

"It's a loss of clarity at a critical time," said Diane Swonk, chief economist at Mesirow Financial in Chicago. "It's like flying blind."

Statistical agencies such as the Bureau of Labor Statistics, Census Bureau and Bureau of Economic Analysis have largely been deemed non-essential after Congress failed to fund the government for the new fiscal year starting in October. Just three out of 2,409 staff are working at the BLS and just 35 out of 15,641 at the Census Bureau.

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Economists think that it may be possible to work out the monthly jobs number retrospectively, because companies keep payroll records and submit data to the BLS electronically, but it will be harder to survey households and calculate the unemployment rate.

"It's a bit different to ask people 'What did you do last week?'," said Keith Hall, BLS commissioner until 2012 and now a research fellow at George Mason University in Virginia. He said that there would be particular concerns about low response rates and the accuracy of peoples' recall.

The ability of agencies like the BLS to catch up will also depend on whether its employees are paid for their time on leave. If they are not, there will be little motivation to work overtime in order to collect all of the data that was missed.

A missing or degraded jobs report would mean a cascade of damage to other economic statistics. For example, it is taken into data on personal incomes, which in turn feed into gross domestic product. At worst, there could be a permanent hole in the record that every future study of the economy has to allow for.

(Read more: Boehner blasts impasse: 'This isn't some damn game')

Several other statistics will also degrade the longer the shutdown continues. For example, the consumer price index relies on researchers visiting shops, so it cannot be calculated in retrospect. Mr. Hall said that in 2011 the estimate was a two week shutdown could cost 50 per cent of the data underlying the consumer price index.

As well as the jobs report, several releases that feed into gross domestic product have already been delayed, including construction put in place and manufacturers' shipments, inventories and orders. Both are compiled by the Census Bureau.

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