The longest U.S. government shutdown in history ended this week after 43 days, bringing relief to federal workers and the broader economy. Yet, markets responded with caution. A series of Fed speeches offered little clarity on the Fed’s next move, with several officials appearing to favor a pause. Odds of a December rate cut have declined notably this week. Equities trended lower in the second half of the week, despite an uptick on Friday, with the tech-heavy Nasdaq faring worse.

Still, the end of the shutdown could be more of a temporary patch than a permanent fix. The deal includes full-year funding for only three out of 12 annual spending bills, with the rest funded only through January, leaving a real risk of a partial shutdown come February, especially if negotiations over Affordable Care Act subsidies falter. The full economic impact is uncertain, but the CBO estimates it could shave around 1.5 percentage points from fourth-quarter real GDP growth. We anticipate Q4 growth to slow to around 1%, down from a tracking of +3% in the third quarter.

As departments like the Bureau of Labor Statistics (BLS) resume normal operations, delayed economic data should start to be released, but the revised schedule is unknown at time of writing. In the meantime, weekly initial jobless claims remain near recent levels (Chart 1). Small businesses also appear to be maintaining a hiring focus. The average change in employment for small firms did remain in shallow negative territory, but October small business employment indicators from the NFIB survey overall reinforced a “low hire, low fire” theme. Job openings are off pandemic highs, but remained in the upper range of historical norms in October (Chart 2). Meanwhile, the share of small firms citing “quality of labor” as their top problem surged to an all-time high of 27%, leaving concerns about taxes (16%) and inflation (12%) well behind.

We will soon find out how well the alternative data  guided us through the shutdown. September’s job report would have been largely finished when the shut down began, and we expect it will be released next week. But, neither October’s Consumer Price Index (CPI) survey, nor the household survey portion of the employment report would have been conducted in the usual way with government workers off the job. The White House has said these reports are unlikely to be released. We don’t yet know if October data in both cases will be imputed from partial results or remain interpolations. The payrolls portion of the October jobs report is still likely to be released though. The lack of CPI for October will have knock on effects for other government data, like GDP, resulting in more estimation than usual. 

All of these data disruptions mean the Fed is unlikely to have all the usual data it would ahead of it’s interest rate decision. Markets are currently putting coin flip odds that the lack of data will lead the FOMC to pause in December, rather than proceed in a data fog.