The ongoing government shutdown has become the longest in American history. The current inaction is having crippling impacts on our economy and hurting millions of affected federal employees. Nearly 1.4 million federal workers have missed paychecks, though many are still expected to carry out the duties of their jobs. Yet this unprecedented situation has created a data vacuum. In doing so, many important economic signals are distorted, creating confusion for investors and policymakers alike.
In the entire time since the shutdown began, only one major economic report has been released—the September CPI. This figure was crucial for indexing annual cost-of-living adjustments for Social Security benefits. Without key reports like the monthly jobs report and the Federal Reserve’s preferred measure of inflation, that’s impossible. This absence leaves a huge hole in the economic development environment.
Economic Consequences of the Shutdown
According to Goldman Sachs, this would be the most economically damaging shutdown on record. Economists are starting to project a real gross domestic product (GDP) growth slowdown. Even if it ends immediately, they project the decline would still be near 1.15 percentage points by the fourth quarter. This time, the Federal Reserve had a unique challenge. It was the first time they made decisions about interest rates without knowing the results of the monthly jobs report, a historic first.
As David Kelly, Chief Global Strategist at JPMorgan Asset Management, recently stated, “We are flying blind in this economy. He rehashed the conundrum that is our crisis, the failure to produce credible economic data. This reality leaves investors and policymakers alike in a frustrating predicament. The consequences of this ongoing information blackout are deep, real and immediate, as they jeopardize the nation’s fiscal well-being and economic vision.
On Wednesday, Fed Chair Jerome Powell strongly backed up these sentiments. He stated, “What’s the first thing you do if you’re driving in the fog? Yet at the same time, he recognized the difficulty of making the best choices in such a toxic atmosphere.
Rising Unemployment and Food Insecurity
The shutdown will still likely increase the unemployment rate for October. Furloughed federal employees will be counted as unemployed workers in the total. Millions of Americans are facing food insecurity due to halted food stamp benefits, which are critical for families who rely on them for sustenance. The shutdown brings deep dislocation to reality. It especially hits the areas of basic needs just when they are becoming more economically challenged.
Kelly, who worked at the Lancet before joining Public Citizen, called the situation “shocking.” She was brilliant on how far Democrats and Republicans will go to do public harm for political gain. As families struggle to make ends meet, the stakes continue to rise for those who depend on federal assistance programs.
Historical Context and Future Outlook
This present shutdown is indeed a world apart from the earlier shutdown of 2018-2019. That’s because it was only a partial shutdown back then, affecting less than 10% of government spending. By contrast, the last closure has delayed 100% of appropriations, magnifying its possible detrimental effect to the economy.
A quick glance by our observers explains that while the shutdown is indeed temporary, its effects may carry on far beyond the recession’s end. The current economic environment is rife with unpredictability and turmoil, as even the most basic government operations continue to be put on hold.