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Government closings can be political earthquakes that paralyze Washington, DC. But for the economy, closings are often barely a blip.
Whatever the economic damage during this period tends to be limited and set quickly. Even the last closure of the government – the record closure of 35 days in 2018-2019 – had few sustainable impacts on the American economy and financial markets.
This could very well be the case again this time, especially if the imminent closure is brief. However, there are reasons why this episode could be different – and not in the right direction.
The American economy in 2025 seems more vulnerable than during previous budgetary fighting. The labor market is stumbled and the Trump administration threatens even more federal layoffs. A government closure would no longer add chaos and uncertainty, at a time when there are already many.
Not only are the issues higher, but closure could also delay the collection and release of certain key economic data – including the report of jobs and monthly readings on inflation. This could force CEOs, investors and even the federal reserve managers to fly blind when they make key decisions.
“The timing is bad. It’s a little more dangerous this time,” said David Kelly, a global strategist at JPMorgan Asset Management.
Trump administration has amplified this feeling of Danger by threatening to carry out mass layoffs of federal workers when closing.
Investors and economists normally upset the shoulders of non -essential federal employees’ leave because they are reimbursed and return to work when the closure inevitably ends.
But the Trump administration reports that this may not be the case this time. Some say that the threat of mass layoffs could be a tactic to put pressure on the Democrats already dismayed by the reduction of federal workforce.
“It seems to be the posture. I don’t think they will do it. But President Trump has been willing to take great risks,” said Stephanie Roth, chief economist of Wolfe Research.
Roth notes that few people thought that President Donald Trump was really going to slap 145% prices on imports from China – until he does.
Before the risk of stopping this year, Trump officials were impatient to distribute pink slides in a quest to considerably reduce the size of the federal workforce.
Roth said that dismissing hundreds of thousands of federal workers when closing “would be a very big economic problem” and unsustainable in the medium term.
Jared Bernstein, an economic adviser superior to the Blanche de Biden house, was shocked by the threat of mass layout.
“This only takes place on innocent passers -by,” said Bernstein to CNN in a telephone interview. “It is not only a bad economy because you would contribute to an unemployment rate already increasing, but it is deeply unfair. It is not their fault if you cannot keep the lights on.”
Normally, the basic rule is that each week of a government closure reduces approximately 0.2 percentage points of the gross domestic product (GDP) – or economic growth. But these losses are quickly reversed as the government reopens.
However, permanent layoffs in the federal government would increase the risk of longer effects, forcing investors and economists to rethink damage to the American economy.
Many, in particular analysts and investors, will be left in ignorance of the health of the American economy if a closure has an impact on the publication of major economic relationships.
The Bureau of Labor Statistics, already in the fire of the Trump administration on the quality of its data, could be forced to delay the report of the September on Friday jobs in the event of closure. The monthly job report is still critical, but it has been particularly important in recent times due to cracks on the job market and important revisions in previous months.
BLS has already faced difficulties caused in part by massive fluctuations in the economy, high budget cuts and low response rates to the survey.
If a stop lasts at least a dozen days, it would probably interrupt the surveys that BLS must conduct to prepare the October job report – that scheduled for early November.
“It is already complicated enough to interpret data from the labor market. If we have a time when the data is not available, these challenges would increase considerably,” said Nathan Sheets, Global Chief Economist at Citigroup, in CNN in a telephone interview.
The collection of data on BLS inflation could also be derailed by a government closure. This is important because investors and Fed officials are on alert for evidence that Trump administration prices increase prices.
Wall Street seems imperturbable as to the risk of closing the government.
American actions jumped on Friday while the chances of a government closure in 2025 increased more than 80% on the Polymarket prediction platform.
Market veterans know that closings tend to be minor events for the stock market.
Since 1976, the S&P 500 has had no change in government closings on average, according to Truist Wealth. American shares even managed to increase by 10% when the government was closed that started at the end of 2018.
“The government’s previous closures have had a lasting minimal economic impact. They tend to imitate a hurricane or a snowstorm, delaying most of the activities and competing quickly during the reopening,” wrote Keith Lerner, director of investments at Truist Wealth, in a report.
Bob Elliott, director of investments at Unlimited Funds, said on Friday in a subordinate position that the markets went through the “same old play book” where a government closure would not have importance for the economy.
“The American macros are disturbing by the Constitution, so take this with a grain of salt,” said Elliott, “but there seems to be a risk that this closure will be different from what we expect.”
