Trump's Labor Bureau Firing Tests Wall Street's Reliance on Government Data

Wall Street's love affair with government data looks headed for splitsville.

- Alexander Saeedy, Jack Pitcher & Peter Rudegeair

Investors have long parsed economic reports on the labor market or inflation to help determine prices for stocks and bonds. But after weak jobs data on Friday prompted President Trump to fire Erika McEntarfer, the top Bureau of Labor Statistics official, the sacrosanct importance of U.S. government data to investors suddenly came into doubt.

Banks have fielded calls from clients, anxious that they may need to rethink how they invest if inflation and employment statistics tied to U.S. investments can't be trusted. Comments over the weekend from the White House's chief economist Kevin Hassett, suggesting that more shakeups could be coming to the bureau, only stoked those fears further. For many investors, the quality of U.S. economic data and the transparency of the collection process have driven the out-performance of American markets relative to its peers over the past century. Some worry that the firing marks the latest threat to that American exceptionalism and, over the long run, could exacerbate pressure on U.S. assets, already elevated because of the trade war and Trump's attacks on the Federal Reserve.

"Your initial thought is, 'Are we heading toward what you see in Latin America or Turkey, where if the data doesn't look good, you fire someone, and then eventually stop reporting it?'" said Alejandra Grindal, chief economist at Ned Davis Research.

Market impacts from McEntarfer's dismissal have so far been muted, with the S&P 500 rising 1.5% on Monday. But the market impacts might not be clear immediately, only appearing after months or even years have gone by.

"These would be things you don't notice on a day-to-day basis, like how the Treasury curve is priced or the value of the dollar relative to other currencies," said Skanda Amarnath, co-founder and CEO of EmployAmerica, an economics think tank.