How's the economy? Fed increasingly turns to private data

WASHINGTON (AP) — About a year ago, Federal Reserve officials were nervous. Markets were cratering. Fear about a trade war was rising. The officials needed to know if the turmoil was chilling consumer spending. Problem was, a partial shutdown of the government had halted the release of most economic data.

So Fed officials did something they couldn't have done during previous shutdowns. They turned to a backup: Consumer spending figures from First Data, a card payment company that processes about $2 trillion in transactions each year. First Data's figures showed that most consumers were shrugging off the upheaval. Weeks later, when the government's data was finally released, it closely tracked First Data's figures.

"It was a big deal for the Fed in terms of having information about the economy when the retail sales data did not come out," said Claudia Sahm, a former Fed staffer who helped compile the First Data figures. Fed policymakers were “extremely interested in what those readings were.”

The experience seems to have whetted the Fed's appetite for private sources of data that can help assess the economy's health. An institution that often calls its interest-rate stance “data-dependent,” the Fed is increasingly recognizing that some privately produced data is nearly as accurate as — and often timelier than — the government reports that it has long depended upon.

“We have been working with big data ... with the purpose of better understanding the current position of the economy,” Chairman Jerome Powell said last summer. “It’s an area of real interest for us.”

Thanks to an array of technological breakthroughs, the potential opportunities have expanded. Millions of financial transactions, digitized and compiled by private firms, could help the Fed and other government agencies track changes in...