The real trouble with the Fed's jobs data turmoil

The decision by payroll processor ADP to suspend the Federal Reserve's access to employment data is a minor story in the scheme of things. But it shows why government-produced economic data is so essential.The big picture: There has been an explosion in recent years in private sector data that sheds light on how the economy is evolving, and much of it is terrific. But there's ultimately no replacement for the government's might in collecting data from all corners of a $30 trillion economy.Private firms will always have data limitations and conflicting goals that mean you can't rely on them to produce data that's maximally reliable, consistent over long periods of time, and available to everyone making economic decisions.Catch up quick: For years, ADP has granted the Fed access to data on its clients' private-sector payrolls, which has become a useful supplement to government employment data — and more granular than the monthly numbers ADP releases to the public.Fed governor Christopher Waller cited that data in the footnotes of an August speech, stating that he looks "at timely data that Federal Reserve staff maintains in collaboration with the employment services firm ADP to construct a measure of weekly payroll employment," which showed some deterioration in the job market in late July.ADP suspended the relationship, The American Prospect first reported and Axios has confirmed. ADP did not respond to requests for comment. The Fed declined to comment.It's a particularly inopportune time, with the government shutdown throttling the usual government jobs data.Between the lines: It sure looks like someone at ADP feared that disclosing the relationship with the Fed could put client relationships at risk or otherwise come at a cost.Whatever the exact reason, the very fact that ADP could suspend the relationship is a reminder that private data providers have different incentives than their government counterparts.Zoom in: ADP has terrific data, handling 20% of private payrolls. But at the end of the day, it makes its money by selling those services to employers, not by providing economic data to the Fed or the media.Bank of America, Visa and Mastercard each use data from their massive client bases to offer data about consumer spending trends that is often more timely than government spending data.Ultimately, though, offering up data is a side hustle for all these companies, meant to generate some press coverage and general goodwill.Zoom out: By definition, any individual company, no matter how big its client base, is not going to have a perfect sample of the nation as a whole.A payroll processor isn't going to capture government employment, and their client mix will inevitably over- or under-represent various industries. A bank or credit card company's data will inevitably be shaped by the geographies and income brackets it serves.The bottom line: Fed officials are always hungry for data about what's going on in the economy, taking it wherever they can find it.As Chicago Fed president Austan Goolsbee told reporters last month, "one of the key rules of the data dogs is sniff everything that lands on the floor to see if it's food."But private sector information is still more a complement than a substitute for the hearty meals offered up by the bureaus of Labor Statistics, Economic Analysis, and Census.Courtenay Brown contributed to this report.

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