The last US federal government shutdown—at 43 days—set the record. It had a huge effect on the U.S. economy, disturbing the data collection for it and leading to the loss of over 12 million jobs. It became the longest such shutdown in history. Not only did it hit federal employees but non-federal employees as well, causing an estimated 60,000 job loss in the region in non-federal sectors due to ripple effects. Economists are still in the process of coming to terms with what this unprecedented shuttering means. They’re examining its effects on GDP statistics and economic growth.
As the Council of Economic Advisers pointed out, the shutdown was an enormous drag on our economy, costing at least $15 billion per week. As a consequence, major data collection efforts came to a halt, hampering the federal government’s ability to release important economic statistics. Such was the disruption that even the household survey half of the employment report, the key to figuring out what happened to the unemployment rate, was affected. Due to the shutdown, this survey was not conducted in October, raising concerns among economists about the accuracy of labor market assessments.
Economic Consequences of the Shutdown
The sudden stop of data collection has shaken the foundation of our most critical economic indicators. White House officials have two primary messages related to the expected data loss during the shutdown period. This loss would be a significant blow to any future analyses of economic trends. Everyone gets half an employment report. The economists will get just half of the October employment report. That’s because of bringing together math from the household survey.
As Kevin Hassett, former chairman of the Council of Economic Advisers noted, that’s an unambiguous signal. As for October’s unemployment rate, he explained, “We’ll get the jobs part, but we won’t get the unemployment rate. That’ll just be one month. We may never really even know for sure what the unemployment rate was in October.” This uncertainty highlights not only the challenge created by the absence of detailed, aggregated data but its greatest danger — amid the country’s most transformative economic transition.
The shutdown’s real damage runs deeper, affecting U.S. economic growth. Analysts estimate that it subtracted roughly 1.0 to 1.5 percentage points from annualized gross domestic product (GDP) growth for the fourth quarter. Much of U.S. policymaking, from economic recovery plans to regulatory reform efforts, could be driven by this declining figure alone.
Market Reactions and Outlook
In reaction to all of these unexpected developments, local stock market futures indicate a sharply downward trajectory for Friday’s trading session. ASX futures are indicating more than 1.5% lower, adding to a fall that started on Thursday. The Nasdaq dropped over 2% in after-hours trading. In the process, the Dow Jones Industrial Average plunged more than 700 points. This downturn should be seen as a bellwether of longer market sentiments as investors respond to the uncertainty caused by a seemingly inevitable, but still prolonged, government shutdown.
The benchmark index is on pace for its third straight week of declines. This trend reflects deepening fears about immediate economic conditions and long-term growth potential. As investors come to terms with the consequences of the shutdown, market volatility will likely be the order of the day in the short term.
