Pop quiz for all you economy-watchers out there: What
are the current US levels of . . .
- Retail Sales?
The answers? We don't know.
That's because one of the side effects of the government
shutdown is that the departments that collect and publish
economic information have not been. The
Bureau of Labor
, which publishes
numbers as well as two of the most widely-followed inflation
, was closed for the duration of the shutdown. And
Bureau of Economic
, which publishes GDP, personal income, and a variety of other
If you're wondering what this means for the economy and
markets, consider this: A month ago, all eyes were on the Federal
Reserve, and all discussion was focused on when they would begin
taper their bond purchases
and by how much. Were enough jobs being created? Were
there signs of inflation on the horizon? How strong is US
growth, and is it sufficient to support removing
accommodation? Would the Fed move in December?
And then the US government shut down, and suddenly no one was
talking about the Fed anymore. All focus shifted to
the impact of furloughed workers on economic growth, and when
Congress might raise the debt ceiling, and whether the Treasury
would default on its debt.
But while the Fed discussion may have been temporarily moved
to the back burner, it's as important as ever in terms of
influencing investment decisions
. The information vacuum created by the shutdown not
only makes it very difficult for investors to see how the economy
is doing, it makes it impossible to project the next move of the
Federal Reserve. For weeks we have been unable to observe
growth, inflation, jobs and other metrics the Fed will use to
assess when to taper their bond-buying program.
Now that the shutdown has come to an end, we would assume
these agencies will be up and running again soon. So what
can investors expect?
Basically, we'll likely see a lot of data come into the market
in a very short period of time. For example, it looks like
we will get the September payroll and unemployment numbers (the
most-watched pieces of economic data) next week, quickly followed
by the October numbers in the first week of November.
Similarly, we can expect to see closely-timed data for CPI, PPI,
construction spending, retail sales, and a host of other data
The upshot for investors? Because of this data deluge,
we could see heightened levels of market volatility as investors
respond to each new piece of information. But, as Russ
Koesterich pointed out in his
, the silver lining of this debacle is that the Fed is likely to
push off tapering for at least a little longer - delaying the
inevitable backup in interest rates.
For fixed income investors, this means a couple of
things. In the short term, a continued lower rate
environment would be supportive of
high yield bonds
. Investors might also consider
agency mortgage-backed securities
, which should benefit from the
Fed's continued purchase of mortgage bonds
. Longer term, rates will eventually rise - it's just a
question of when. This is why we've seen a lot of clients
shifting bond portfolios to shorter duration securities, such as
short duration credit
, this past year.
Matt Tucker, CFA, is the iShares Head of Fixed Income
Strategy and a regular contributor to
. You can find more of his posts