The federal government shut down on October 1. In past research we’ve noted that the economic effects of shutdowns tend to be minor. Most shutdowns are very short-lived, though recent episodes include a 17-day shutdown in Oct 2013 and a record 35-day shutdown in Dec 2018-Jan 2019. The 2013 shutdown is more comparable, as no appropriation bills have been passed this fiscal year. Partial funding in 2018-19 limited furloughs and enabled uninterrupted data releases. For now, we are not making any assumptions about the length of the shutdown, and focus on what data watchers can expect in terms of the availability of data and the impact of the shutdown on published numbers.

Data availability: During the shutdown, the government won’t publish the vast majority of data releases, including the employment and CPI reports. It does appear that we will get the weekly jobless claims data, though possibly with up to a day’s delay. Once the government re-opens, the September releases will be published, but there likely will be a delay. In October 2013 the government re-opened October 18, but the September employment report was not released until October 22, and the CPI was not published until October 30.

If the shutdown lasts long enough it could lead to the government being unable to later publish October releases. In Octo- ber 2013 the shutdown was not long enough to stop collection for the October employment report, though there was some drop in available price quotes in the CPI. If the CPI cannot be sampled at all it could also bias the November CPI level (see discussion here).

The FOMC: Assuming the shutdown is over within a couple weeks, there should still be plenty of time for the FOMC to see the employment report before the October 28-29 meeting. They may not have the CPI: in 2013 the transcript shows they only saw the CPI on the second day of their October 29-30 meeting, when the report was made public. If there is no employment report, then we expect them to focus on avail- able indicators, including ADP, consumer confidence, jobless claims, and other private-sector measures of employment, job openings, and announced job cuts. The prior trends in jobs data and the available September releases reinforce the case for continuing 25bps insurance cuts, and may cause new 50bp dissents from Waller and Bowman.

Government furloughs: The CBO estimates that 750k government workers will be furloughed on a daily basis. That compares to 380k in 2018-19, and 800k in the first week and 485k in the second week of the 2013 shutdown. Furloughed workers will receive back pay once they return to work, but in the meantime they would not be receiving $400mn per day in compensation. Many other employees will be temporarily working without pay. The fact that the government is threat- ening to also fire furloughed workers could cause a larger consumption drag than would normally be the case. Furloughed workers don’t count as a reduction in nonfarm payrolls since they still accrue pay, but they will be counted as unemployed in the household survey. The number of unemployed on temporary layoff rose 465k in October 2013, and 185k in January 2019 on a seasonally adjusted basis. Assuming government workers aren’t at work for the whole of the household reference week (October 12-18), then unem- ployment could rise by 750k, pushing up the unemployment rate by 44bps.

Government layoffs: OMB sent a memo to agencies telling them to “consider issuing RIF notices” during the shutdown, and on October 1, OMB head Russell Vought told lawmakers there would start to be layoffs in one to two days. This may just be a negotiating tactic or a measure to emphasize layoffs that were already planned. In August, OPM head Scott Kupor said federal government headcount would be reduced by 300k this year, with 20% of that (60k) coming via layoffs. Including the deferred resignation program, the government is already on pace to meet the 300k goal. However, per the JOLTS, federal layoffs year-to-date were only 15k above last year, which could imply planned future layoffs. It is also possible the government will try to push for even larger layoffs. Still, given a US labor force of 171 million, additional layoffs may not have a major labor market impact.

Jobless claims: Federal government employees are not counted in the normal headline claims number. The shutdown should boost non-federal claims, however, as shutdowns are disruptive for contractors and others who indirectly rely on government services. Claims jumped ~50k in the first week of the 2013 shutdown and held there for a week, and rose 10k in the first week of the 2018 shutdown.

GDP: Government hours worked are directly used to calcu- late government consumption in GDP. In the 2013 shutdown, we assumed this and other factors depressed GDP by 0.25%. Just after the shutdown ended the Fed had estimated it would subtract 0.5% from GDP. The impact is unlikely to be very noticeable given normal variation in GDP, and should be largely reversed in the following quarter.

Other economic indicators: Based on our prior work we may see a short-lived hit to business and consumer sentiment. Beyond that, though, we don’t expect to see much impact.