US Economic Data Reliability: A Growing Concern for Investors

US economic data reliability is a growing concern for investors as the next Fed rate cut approaches. Questions about data quality have resurfaced, particularly with the Bureau of Labor Statistics cutting back on regional collection efforts due to a federal hiring freeze. This could impact the volatility of certain details within the consumer-price index report.

US economic data reliability is a growing concern for investors as the next Fed rate cut approaches. Questions about data quality have resurfaced, particularly with the Bureau of Labor Statistics (BLS) cutting back on regional collection efforts due to a federal hiring freeze. This could impact the volatility of certain details within the consumer-price index (CPI) report.

The BLS, which produces the monthly CPI, the most closely watched inflation measure, has reduced its sample size in areas across the country and stopped collecting price data entirely in specific cities like Lincoln, Nebraska, and Provo, Utah [1]. The agency cited a staffing shortage due to the Trump administration's hiring freeze as the reason for these cutbacks.

The reduced data collection may introduce more error into the estimates, potentially making the indexes more volatile and less accurate. "When you have a reduced sample size, it introduces more error into the estimate," said Omair Sharif, chief economist at the consulting firm Inflation Insights [1].

The cutbacks come at a time of heightened uncertainty about the economy and the impact of Trump's tariffs on prices. Officials at the Federal Reserve have cited the cloudy outlook as a key reason for not cutting their short-term interest rate [1].

In addition to the CPI, the BLS is also cutting hundreds of indexes from the Producer Price Index (PPI), which measures price changes before they reach the consumer. The BLS has stopped monitoring wholesale prices in about 350 categories, including cookware, greeting cards, toys, and power tools [2].

The hiring freeze has also led to concerns about the reliability of other economic data. The BLS has lost about 15% of its personnel since the beginning of the year, raising concerns about the accuracy of lesser-known economic measures [1].

The reduced data collection is likely to continue until the hiring freeze is lifted. President Trump has extended the freeze indefinitely, suggesting future inflation reports will also involve less data collection [1].

Investors and financial professionals should be aware of these potential impacts on economic data reliability as they make investment decisions. The next Fed rate cut is expected to be influenced by the quality of the economic data, and any concerns about data accuracy could impact the timing and size of the rate change.

References:
[1] https://www.business-standard.com/world-news/inflation-data-threatened-by-government-hiring-freeze-as-tariffs-loom-125060500075_1.html
[2] https://finance.yahoo.com/news/official-us-economic-data-getting-173138429.html