• Citigroup economists expect October's key inflation and employment reports may still be published despite government shutdown disruptions
  • Data reliability could be compromised, with agencies potentially relying on retrospective surveys and estimates
  • Citi anticipates soft labor figures and predicts the Federal Reserve will cut rates in December, January, and March

Critical U.S. economic data for October, including the Consumer Price Index and monthly payrolls report, may still see publication despite ongoing government shutdown disruptions, though with potentially compromised reliability, according to analysis from Citigroup economists.

The reports, typically released by federal statistical agencies, could emerge through alternative methodologies as agencies work to fill data gaps created by the funding lapse. People familiar with the matter suggest statistical agencies are exploring workarounds that might involve retrospective surveys and increased reliance on estimation techniques.

"The expectation is that we'll get some form of these releases, but the usual confidence intervals around the data will be wider than normal," said one economist who asked not to be identified discussing sensitive agency operations. "When you're piecing together data after the fact, there's always more noise in the system."

Citigroup's economic team expects any labor market data that does emerge will show softening conditions, reinforcing their view that the Federal Reserve will embark on a series of rate cuts beginning in December and continuing through the first quarter. The bank's forecast calls for additional reductions in January and March as economic momentum slows.

Efforts to maintain data continuity during the shutdown have hit operational snags, with some collection systems operating at reduced capacity or relying on previously gathered information. The Bureau of Labor Statistics did not respond to requests for comment on its contingency plans for economic indicators.

Market participants are watching closely, as unreliable data could complicate the Fed's decision-making process at a sensitive juncture. "If we get numbers that are clearly distorted by collection problems, it creates additional uncertainty for both markets and policymakers," the economist added.

Citigroup's projection for three consecutive rate cuts reflects growing concern about economic softening, particularly in the labor market. The bank's economists have been monitoring high-frequency alternative data sources to supplement the potentially compromised official statistics.

Treasury and markets executives at several major banks have begun preparing for increased volatility around economic releases, with some warning clients that typical trading patterns around data announcements may be disrupted.

Correction: An earlier version of this article misstated the timing of expected Federal Reserve rate cuts. Citi economists expect cuts in December, January, and March, not consecutive months starting in December.