How Reliable Are U.S. Economic Data? For Investors Waiting for the Next Fed Rate Cut, This is a Growing Risk

Investors are increasingly struggling to make sense of the U.S. economic outlook, with growing doubts about the accuracy and reliability of official government data. A major point of confusion lies in the contrast between consumer sentiment surveys and hard data, such as labor market statistics, which seem to send conflicting signals.

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Now, the credibility of U.S. economic data is being called into question more openly. This week, the Bureau of Labor Statistics (BLS) acknowledged that it had scaled back certain regional data collection efforts used to compile the Consumer Price Index (CPI) in both April and June. The agency cited limited resources due to a federal hiring freeze as the reason for these cutbacks.

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According to a statement on the BLS website, the adjustments shouldn’t affect the headline inflation figures that investors usually prioritize. However, the agency warned that reduced data collection could make specific components of the CPI more volatile. When contacted, a BLS representative declined to provide additional comments.

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The next CPI report — which will offer a glimpse into May’s inflation trends — is expected on Wednesday, followed by a producer price index release the next day. These updates are critical for investors and policymakers alike, as they try to understand where inflation is headed and how the Federal Reserve might respond.

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For years, U.S. economic statistics were considered among the most accurate and detailed in the developed world. But that reputation is beginning to erode. Some economists and investors have pointed out inconsistencies and methodological weaknesses in reports like the monthly nonfarm payrolls data. These flaws have been particularly noticeable in the past year.

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Eric Pachman, chief analytics officer at Bancreek Capital Advisors, acknowledged in a recent interview with MarketWatch that these problems are well known within financial circles — but they’re often brushed aside because “perception is reality” in the markets.

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The Federal Reserve, meanwhile, relies more on the personal consumption expenditures (PCE) price index — a separate inflation gauge — for its decision-making. These figures are also compiled by federal statistical agencies. If the quality of such data declines, it could complicate the Fed’s already challenging task of balancing inflation control with economic growth.

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Beyond the CPI, other data quality concerns have also resurfaced. Steven Englander, a macro strategist at Standard Chartered, published a report on Thursday noting discrepancies between the BLS’s monthly jobs numbers and a quarterly employment report widely regarded as more dependable, though slower to be released. He suspects some of the differences stem from how the monthly data is calculated.

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Englander suggested that if the Federal Reserve had access to more precise labor data in real time, it might have made different decisions regarding interest rates. For example, the Fed could have delayed one of its rate hikes in 2023 or acted sooner to reduce rates. Ultimately, the Fed did cut its benchmark rate in September — the first rate decrease since the pandemic began.

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Recent payrolls data has frequently been revised downward after initial release. Friday’s May jobs report included such downward revisions for the prior two months. Moreover, earlier this year, it was disclosed that the economy added 818,000 fewer jobs between spring 2023 and spring 2024 than initially reported.

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These data issues couldn’t be emerging at a worse time. Steve Dean, chief investment officer at Compound Planning and a former Fed economic researcher, warned that problems with BLS data collection are occurring just as investors and policymakers attempt to assess how tariffs imposed by former President Trump might influence both inflation and employment trends.

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Dean emphasized that any decline in data quality or reliability undermines confidence in the reports, which in turn makes the Fed’s policy decisions more difficult. In the current environment — where inflation and labor market conditions are both pivotal — having trustworthy data is essential, he noted.

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Michael Brown, senior research strategist at Pepperstone, echoed those concerns. He said questions about economic data accuracy aren’t limited to the U.S., pointing to similar issues in the U.K. Brown stressed that all market participants — from investors to policymakers — rely on accurate data to make informed decisions. If the numbers can’t be trusted, those decisions become far less effective.

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Despite the ongoing uncertainty, U.S. equity markets ended the week on a high note. On Friday, the S&P 500 closed above 6,000 for the first time since February. The Nasdaq Composite also reached its highest closing level since that same month, and the Dow Jones Industrial Average recorded its best finish since May 19, according to Dow Jones Market Data.

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