Two weeks before the US Federal Reserve's final meeting, with the federal government's data taps closed, Atlanta Fed staff bolstered their economic outlook by analyzing how previous surveys of business executives aligned with data on employment, spending, output, and other data recorded in federal reports.

These results bolstered their confidence that central bank policymakers still have a good, if rough, alternative ahead of the October 28-29 meeting: between surveys proven to closely track the economy, private data the Fed has used for years, and new insights from emerging technology companies.

Although Fed Chairman Jerome Powell has said that the lag in official data could make policymakers more cautious about further policy changes, the Fed is in some ways overwhelmed by information from massive online data collection, artificial intelligence models, and mobile phone tracking, challenged both by extracting signals from the abundance of information and by adding additional information.

Some cases are straightforward. Fed staff feel the abundance of online job postings from companies like Indeed, for example, is consistent with government job posting reports. Other job postings are still being developed. Service sector inflation is a particular black box, not as easily discerned online as the price of goods, although efforts are underway to see if AI can analyze corporate earnings reports or other documents for price signals.

Still, "we're getting a pretty solid picture of what's happening in the aggregate even though we don't have official statistics," said Brent Meyer, assistant vice president and head of the Atlanta Fed's Economic Survey Research Center, which polls about 5,600 corporate executives quarterly about expected company performance, the economic outlook, and other issues. "This isn't just anecdotal. We're capturing a significant portion of what's happening."

Regarding the shutdown, Meyer said they looked at how executives' prior forecasts of future sales matched official statistics a year later and found that those statistics tracked overall output growth "very closely." Polls on unit cost increases—a precursor to inflation—and hiring also aligned. In cases like job growth where the connection is a bit weaker, private data sources have proven to be a rich complement.

The overall outcome ahead of the October meeting was that "the third quarter was really good... We didn't see a sharp decline," Meyer said, although there were signs of rising price pressures.

The Fed will meet again on December 9-10, with investors expecting another quarter-percentage-point rate cut. (alg)

Source: Reuters.com