Markets Bracing for Lack of Economic Data Amid Government Shutdown

Government shutdowns often make big headlines but have historically had little impact on markets or the economy.

This time it could be different.

In the past, shutdowns have caused short-term market dips that quickly recovered.

Now keep in mind the Labor Department will now halt most operations, including BLS statistics during the shutdown and the Could delay key reports like jobs data and inflation figures impacting Social Security adjustments and also Fed Reserve policy decisions.

Well, joining me this morning to weigh in is Brian Jacobson, chief economist of Annex Wealth Management.

Good morning, Brian.

Thank you so much for joining me.

The US market.

It's great to be here.

Thanks for having me.

Here we are, the government.

Thank you so much for joining us.

Well, how do government shutdowns typically affect GDP as well as market performance and why do you think this shutdown could possibly be different?

You know, this shutdown is going to be, I think, you know, history does somewhat repeat it more like it rhymes, I think is what the old saying is from Benjamin Disraeli, right?

History doesn't repeat, but it rhymes.

This time the twist is that looming threat that will this be taken as an opportunity to not just furlough federal government employees but actually to reduce their ranks completely through.

Ofs or firings, I think that's the big unknown and what could make this one a little bit different because the last one about 7 years ago, 2018 to 2019, that was a rather long shutdown lasting 35 days.

Most analysis suggests that we did lose economic output on net because of the duration.

If it's short enough, it's like you lose.

Some economic activity, but then it picks up.

It makes up for lost ground once things reopen.

The longer it lasts, the harder it is to regain the footing.

And then to add on top of that the possibility of using this as an opportunity to actually trim the federal government employee labor force even more, I think this time could indeed be different.

And Brian, of course there's also the issue of economic data.

So Friday morning we're supposed to get that non-farm payrolls, unemployment rates.

So what impact could a prolonged government shutdown have on economic data as well as the actual labor market itself?

Yeah, I'm not sure what I'm going to do with myself if I don't get the government data, right?

I mean, I might be wandering around listlessly the the office here because I rely on that data, and a lot of people do.

Not only might it affect this employment situation report that comes out, but also it could affect the inflation numbers because the Bureau of Labor Statistics, they're not going to be out there collecting the data for that October 15th release.

That is supposed to be coming out.

So the Fed, when we think about what this might mean for them, they're relying on looking at the risks to their mandate unemployment rate, which comes from the BLS, and inflation, which part of that comes from the Bureau of Labor Statistics.

Technically they also use data from the Bureau of Economic Analysis, but all of that will not be available to them.

And so they'll be going into that meeting flying blind, which is not a good feeling.

And while I have you here, I do want to ask you how a shutdown and potential permanent cuts to federal workers impact consumer spending and also overall economic growth.

Yes, for those individuals who are affected by this, even if they have to continue working, they don't get their paycheck.

And my heart goes out to those people because they're doing the work, but they're not getting paid.

Now granted, they will get back pay, but they still need to have the financial wherewithal, the savings or the credit in order to bide time until they get their paycheck.

We have seen in the past credit card spending increase in those areas because they can't pay for checks, but on net, a reduction in it.

Now thankfully it doesn't tend to be huge in terms of the effect on the overall economy because federal employment isn't that large of a part of the US workforce.

It's big, but it's not like everybody works for the federal government.

And so we are likely to see almost, I would call it a localized recession in areas like Maryland, Washington DC, and Virginia, so areas in which they are heavily dependent on federal employment.

And Brian, I do want to get your take on this morning's ADP figures since we did actually get that data point out from ADP this morning.

We saw a surprise downside of negative.

So what do you expect moving forward as we also get weekly jobless claims?

Yeah, I'm expecting that we're going to continue to see a muddle along labor market possibly getting some footing.

It's almost like if you've ever gone out and tried to skip a rock across a lake, you know that it kind of, it goes up, it goes down, eventually it sinks.

Will it eventually sink, or is this more along the lines of a basketball where you're dribbling it and then you can actually get a bigger bounce later on?

The jury is still out on that.

The ADP numbers, they did do a benchmark revision, so.

Technically, if you exclude that, the private sector payroll gains were 11,000 and not a decline of 32,000, so not quite as bad, but it's certainly nothing to be really all that proud about.

I think that the ISM numbers that we get at the top of the hour here on manufacturing and then the ISM services numbers that we are going to be getting on Friday, those are going to be really important to really get another read about the health of the labor market in those two particular sectors.

And finally, Brian, before I let you go, for our viewers out there who are wondering how a government shutdown will affect them, what impact could interrupted reports have on, say, Social Security adjustments as well as overall economic stability?

Yeah, I think that the key thing is it will be business as usual in terms of the checks will still go out at TSA, give them a lot of grace because they're going to be working, but they're not necessarily getting paid until the government shutdown ends.

So a lot of the services that we're mostly used to will continue from a regulatory perspective for small businesses.

If they're looking for regulatory approval, that won't happen.

That gets put on ice.

But in terms of the everyday Americans, we are going to have to wait to see.

Those Social Security cost of living adjustments will be for 2026.

Those are usually dependent on the third quarter inflation numbers, so that includes the release that is supposed to come out on October 15th.

If we don't get that, we won't know what that cost of living adjustment will be until that data is actually released.

So from a financial planning perspective, you might have to wait a little bit or make some assumptions about what your raise might be for 2026.

Well, Brian, thank you so much for joining me this morning as we kick off the final quarter of 2025.

Thank you so much.

Thank you.