By Howard Schneider
WASHINGTON (Reuters) -Two weeks before the U.S. Federal Reserve’s last meeting, with the federal government’s data spigot closed, Atlanta Fed staff backstopped their view of the economy by analyzing how past surveys of business executives had aligned with employment, spending, output and other data captured in federal reports.
The results boosted their confidence that central bank policymakers still had good, if rough, substitutes available ahead of the October 28-29 meeting, between surveys that proved to closely track the economy, private data the Fed has used for years and new insights from emergent technology firms.
While Fed Chair Jerome Powell said the official data hiatus could make policymakers more cautious about further policy changes, the Fed is in some ways drowning in information from massive online data scraping, artificial intelligence models and cellphone tracking, challenged as much by drawing a signal from abundant information as by adding more.
Some cases have been straightforward. Fed staff feel the trove of online job postings from firms like Indeed, for example, have been consistent with government job-opening reports. Others are a work in progress. Services inflation is a particular black box, not as easily seen online as goods prices, though efforts are underway to see if AI can analyze company earnings reports or other documents for price signals.
Still, “we are getting a pretty solid read on what is happening in aggregate even if we don’t have the official statistics,” said Brent Meyer, assistant vice president and head of the Atlanta Fed’s Economic Survey Research Center, which polls roughly 5,600 company executives quarterly about expected company performance, the economic outlook and other issues. “This isn’t doing things by anecdote. We are capturing a large swath of what is happening.”
In response to the shutdown, Meyer said they looked at how executives’ past predictions of upcoming sales matched official statistics a year later, finding it tracked overall output growth “really closely.” Polls on unit cost increases – a precursor to inflation – and hiring also were in line. In cases like job growth where the connection was a bit weaker, private data sources have proved a rich complement.
The overall read ahead of October’s meeting was “the third quarter really ticked up…We are not seeing things fall off a cliff,” Meyer said, though there are signs of price pressures building.
The Fed next meets on December 9-10 with investors expecting another quarter-percentage-point rate cut.
A GROWING MENU
The Atlanta Fed is hardly alone. Since the now-record-long shutdown began on October 1, policymakers from across the Fed system have created alternative data dashboards, released modeled estimates of missing statistics like the unemployment rate, compared the trajectory of different surveys to past government data, and kept a focus on the coast-to-coast conversations with businesses and workers held to prepare the Beige Book collection of economic views.
In one new study, the Boston Fed looked at how “sentiment analysis” based on the Beige Book text could be used to flag possible recession risks.
It is a far from opportune time to have less information, with officials divided over whether to prioritize sustained job growth and rate cuts at the risk of higher inflation. Government data on unemployment and inflation typically offer powerful touchpoints in that debate, engineered to represent U.S. demographic and geographic diversity and with long histories allowing analysis of trends over time – qualities that private data and other sources don’t always share.
But policymakers have also emphasized the need to make do, and the tools to allow that have never been richer.
In normal times, the Bureau of Labor Statistics on Friday would release estimates of how many payroll jobs were added in October, in which industries, how many people were employed and unemployed, and the labor force participation and unemployment rates.
While some things are lost in its absence – changes in things like the Black unemployment rate can flag turns in the economic cycle and are not estimated elsewhere – policymakers could still assemble a portrait of the job market from payroll-processor ADP’s estimate of 42,000 private-sector jobs created in October, incoming state reports on unemployment claims, a Chicago Fed estimate that the unemployment rate rose slightly to 4.4%, and Revelio Labs estimating overall employment declined by 9,000 last month, mostly due to losses of government and retail jobs.
HEARING THE STORIES
Even that list is incomplete, and likely to expand.
Revelio’s data, for example, was a recent addition that Fed research staff were briefed on in late October after the seven-year-old firm decided to release monthly estimates of national job growth and other statistics compiled by scraping sources like LinkedIn.
Revelio Chief Economist Lisa Simon noted in an interview the limits of what the company’s database can do – offering what she feels is a good picture of monthly employment by industry but without BLS population estimates needed to calculate things like labor force participation or unemployment rates.
Alberto Cavallo, a Harvard University business professor who founded PriceStats, an online price tracking company cited recently by Powell, outlined in a webinar with the Cleveland Fed this week the limits of his project, a massive database of prices that nevertheless has nothing on housing and limited information on services prices.
The data “is meant to be directional…We can’t replace the CPI,” Cavallo said of the Consumer Price Index, likely to be skipped for October in the first-ever break in the series.
Speaking this week, Fed Governor Lisa Cook, whose earlier career research constructed methods of estimating innovation from patent awards, said the Fed particularly since the pandemic has sought alternative views of the economy.
“That practice has become essential…Hiring is slowing. We see this in job postings. We are looking at a panoply of data and those are in real time. We are not waiting on the unemployment report,” she said.
Beyond that, she said, conversations with executives and workers can fill in the cracks, something Fed policymakers relied on heavily earlier this year when rapid changes in tariff and immigration policy made it seem as if the economy might change faster than could be reflected in government reports that lag by weeks or months.
“We receive a lot of aggregate data and a lot of analysis,” Cook said. “What I want is the mortar between the bricks. I want to hear what the stories are.”
(Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci)
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