As the US government shutdown approaches its conclusion, market attention is shifting from political gridlock to the release backlog of economic data and its impact on the Federal Reserve's December rate decision.
According to trading desk sources, Morgan Stanley published a research report on November 10, projecting a timeline for key data releases based on 2013's experience. The report indicates that once government operations resume, delayed economic reports will begin rolling out sequentially.
Based on the report's estimates, if the shutdown ends on November 14 (Friday):
September employment report: Expected around November 19 (3rd business day post-shutdown) - the first major data release for markets.
September retail sales and PPI: Likely around November 26 (8th business day).
Q3 GDP: Scheduled for December 5 (15th business day).
October employment report: Potentially December 8 (16th business day) - the day before the Fed meeting.
The report highlights that since this shutdown spanned the entire October, data collection delays could be more severe than in 2013, risking further postponements. For instance, October retail sales and CPI might not arrive until December 18 - after the Fed meeting.
The "Data Puzzle" for December Rate Cut: What Will the Fed See? For investors, the critical question is how much information the Fed will have for its December 9-10 meeting.
Morgan Stanley's analysis suggests the Fed will almost certainly have access to September employment, inflation (PCE), retail sales data, plus some trade and manufacturing indicators. Preliminary Q3 GDP and October employment reports might also arrive pre-meeting. The report even suggests November's jobs data could be released timely or near-timely.
However, policymakers will face extreme scarcity of Q4 data. Beyond auto sales, official personal spending figures for Q4 will be virtually unavailable before the meeting.
Morgan Stanley's Base Case: 25bps December Cut Despite data delays, Morgan Stanley maintains its core view: the Fed will cut rates by 25bps in December.
The report identifies weakening labor demand and rising unemployment as key drivers for continued easing. The firm forecasts just 50,000 September nonfarm payroll gains with unemployment holding at 4.3%, expecting October-November jobless rates to climb to 4.5%. These signs of "modest labor market slack" should justify Fed action.
Investors' Asymmetric Risk: When "Good News" Becomes "Bad News" The report highlights current "asymmetric risks" for markets. Fed Chair Powell already signaled in October that a December cut isn't predetermined, with the committee becoming more data-dependent.
This implies:
Weak data: Since markets have priced in cuts, expected softness (like slowing job growth) won't cause major volatility unless showing sharp deterioration (e.g., surging layoffs).
Strong data: The real risk. Unexpected labor market reacceleration (e.g., rebounding payrolls, falling unemployment) would directly challenge the dominant rate-cut narrative, forcing markets to reconsider the Fed's path and potentially repricing rate futures while pressuring risk assets.
In summary, post-data return, markets will intensely focus on labor indicators. For investors, coming weeks might see "good news" (economic strength) ironically becoming "bad news" triggering market adjustments.
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