One of the ironies (and there are many) of the U.S. government shutdown is that we’re pretty sure it’s having a serious economic impact – but the people whose job it is to measure that impact aren’t at work. Because they work for the government. Which is shut down.
As President Donald Trump’s impasse with Congress over funding for his border wall drags into its second month, one of its notable casualties of the resulting shutdown has been the usual flow of key government-administered data on the U.S. economy. The empty statistical pit that is normally filled with important, carefully scrutinized facts and figures is getting deeper by the week.
This is no small matter for the many experts who track the economy – and not just in the United States, but in Canada, too. For the central banks on both sides of the border who have stressed that their path of interest rate increases has become highly “data dependent,” the shutdown could soon become a serious impediment to rate policy.
For the Fed, the problem is pretty obvious. Its rate outlook has grown less certain over the past couple of months amid turmoil in financial markets and signs of slowing U.S. and global growth. It is still leaning toward further rate hikes, but has stressed that the timing of them will depend on the economic data. Now, it heads into a rate-setting meeting next week without several of the critical data bricks on which it would normally build its economic analysis. Already missing are monthly reports on international trade and retail sales. Soon, the biggest statistical release of all, U.S. quarterly gross domestic product – set for Jan. 30, the same day as the Fed’s rate decision – could join them. And if that’s not bad enough, the Fed will also be trying to guess how much the shutdown itself is weighing on the economy.
But the U.S. data vacuum is starting to suck Canada in, too.
Last week, Statistics Canada announced that it won’t publish its December international trade report on Feb. 5 as scheduled. Statscan relies on import documentation collected by the United States Customs and Border Protection, and compiled by the United States Census Bureau, to measure Canadian goods that cross the border into the United States. Because the census bureau is shut down, Canada won’t get the data – which account for about three-quarters of its exports.
With trade data representing a key component of gross domestic product, Statscan said that its fourth-quarter GDP report, set for March 1, could also be affected. It said it still intends to release the GDP report as scheduled even if it doesn’t have December trade figures at that time, but it will provide an estimate by extrapolating from other related data. We’ll get a number, but it will be far from perfect – and likely subject to significant revision.
That would send the Bank of Canada into its own rate decision, scheduled for March 6, with a serious shortage of reliable information. The central bank is itself wrestling with the timing of future rate hikes, which are on hold while the bank sorts out the impact of the recent slump in Canada’s oil market. Given that oil is Canada’s single most important export, the lack of trade numbers will be decidedly unhelpful.
Trade in general will be key to any assessment of the Canadian economy’s staying power as it entered 2019. The Bank of Canada has been counting on trade to be a key growth engine this year, as higher interest rates and slowing housing markets take the wind out of the consumer sails.
The recent data we’ve been seeing on domestic activity has not been inspiring. Figures released Wednesday showed that retail sales fell 0.9 per cent month-over-month in November. That came on the heels of Tuesday’s wholesale trade and manufacturing sales numbers for the same month, which showed declines of 1 per cent and 1.4 per cent, respectively. Together, they imply that the economy may have contracted that month – and that fourth-quarter GDP growth may have been even weaker than the Bank of Canada’s estimate of 1.3 per cent annualized.
The trade numbers will have a lot to say about where those growth numbers actually land – if only we had trade numbers. In an interview Wednesday with Bloomberg TV from the Davos global economic summit, Bank of Canada Governor Stephen Poloz acknowledged that he’ll only have “very partial trade data” at his disposal while the U.S. shutdown continues. He suggested that the bank may turn to its business surveys to try to fill in the blanks around trade activity.
At a time when the Bank of Canada has some critical economic assessments on its hands, “very partial” isn’t helpful. Unless the shutdown ends soon, the central bank may be forced to do its analysis blindfolded.