On October 1st, the U.S. government shut down all “non-essential” services, as Congress failed to pass a bill necessary to fund government in the current fiscal year. Financial markets have shrugged off the shutdown so far, with equities ending the week higher, bond yields declining, and the U.S. dollar weakening only slightly. In past shutdowns in 2013 and 2018, equities and the USD declined modestly and recovered quickly, so the reaction this time is even more muted.  

If this shutdown is brief, the markets may be right to discount it. Most lost output in previous shutdowns was eventually recovered. Studies show shutdowns reduce annualized quarterly real GDP growth by up to 0.1 percentage points for each week. However, negative effects increase non-linearly the longer the shutdown lasts as disruptions accumulate (report). 

The lack of updated official economic data is another casualty of the shutdown. September’s payrolls release has been postponed. A prolonged shutdown may delay other key indicators like the Consumer Price Index (CPI). A lack of official data complicates decision-making for the Fed. For now, the Fed will have to rely on private and internal data sources. Earlier this week, Chicago Fed President Goolsbee (who is a voting member of the FOMC) echoed that, but also acknowledged that it worries him “that we wouldn’t be getting official statistics at exactly a moment when we’re trying to figure out is the economy in transition.”  

Without official payrolls data, employment surveys—such as ADP and JOLTS—filled the gap. The ADP report showed continued weakness in job growth in September, with private payrolls declining by 32,000. Though ADP data can be volatile, recent trends show greater alignment with payroll figures through 2025, especially on a three-month moving average (Chart 1). The August JOLTS report, released before the shutdown, also showed a hiring drought, with job openings below the number of unemployed for a second consecutive month (Chart 2). Although job opportunities were scarce, layoffs have remained subdued. Employers seem to be in “low hire, low fire” mode, supporting stability in the unemployment rate and helping to cushion consumer spending for now. 

In terms of economic growth, ISM indexes pointed to slowing momentum in September, with businesses increasingly citing the growing impact of tariffs on their bottom lines. The ISM manufacturing index edged higher, but remained in contractionary territory, with only 5 out of 18 industries reporting growth. Activity moderated in the services sector, with the ISM non-manufacturing index declining to 50.0 from 52.0, narrowly avoiding slipping into contraction. Details were disappointing: new orders and business activity moderated, prices rose and the employment subcomponent remained in contractionary territory. While limited, this week’s data continues to support the case for additional monetary stimulus from the Fed, with another rate cut in October being nearly priced in by markets.