Government shutdown could delay key economic data at crucial moment

(NewsNation) — Monthly economic data guides everything from interest rates to investment decisions, but a government shutdown could leave policymakers flying blind at a critical moment.

The Bureau of Labor Statistics, which produces key reports on jobs and inflation, will "suspend all operations" if the government shuts down, according to a Labor Department contingency plan. Reports scheduled during the lapse "will not be released," and data collection will cease, the memo said.

That means Friday's highly anticipated September jobs report could be delayed if Congress and President Donald Trump fail to reach a funding deal before Tuesday's midnight deadline.

Mark Hamrick, senior economic analyst at Bankrate, called the prospect "especially ill-timed" given the "high degree of uncertainty" already surrounding the economy.

Recent reports show the labor market weakening. Job growth has stalled, and the unemployment rate has climbed to 4.3% — the highest since 2021. While still low by historic standards, it's up from 4.0% in January.

The softening job market prompted the Federal Reserve to cut interest rates earlier this month for the first time in 2025, even as inflation remains above its 2% target. Officials are counting on fresh government data to guide their next move, but that's now at risk.

"Any delay in releasing essential economic data, such as the monthly jobs report, directly impacts the decision-making abilities of consumers, investors, business leaders, and policymakers alike," Hamrick said in an email.

If the shutdown drags on, inflation data due in mid-October could also be delayed. A partial shutdown during Trump's first term lasted 35 days. The Fed isn't set to meet again until late October, leaving some time before its next interest rate decision.

How is the U.S. economy doing?

The potential data blackout comes as policymakers confront a rare mix: inflation is climbing even as the labor market slows.

Typically, those forces move in opposite directions since a slowing economy tends to cool demand, keeping prices in check. But Trump's tariffs have muddied the outlook, leaving Fed officials wary of renewed price pressures.

"There are no risk-free paths now," Fed Chair Jerome Powell said at a press conference earlier this month. "It’s not incredibly obvious what to do."

Lowering interest rates further could support hiring, but risks fueling prices when inflation is already elevated.

So far, inflation hasn't accelerated as sharply as some feared. Powell has expressed hope that the tariff impact on inflation will be temporary, though that's not guaranteed. Grocery prices surged at their fastest monthly pace in roughly three years between July and August, led by beef and coffee, according to the Consumer Price Index.

Meanwhile, job growth has stagnated, and outside of health care, many sectors are struggling to add workers. New data Monday showed the hiring rate dipped to 3.2% in August — an anemic level last seen in June 2024, but hasn't occurred multiple times in a year since 2012.

That tension between jobs and inflation makes timely data especially crucial. Gregory Daco, chief economist at the consulting firm EY-Parthenon, warned that the shutdown is coming at a time when "policy is more data-dependent than ever."

Consumer spending defying expectations

So far, consumers have shown surprising resilience. Retail sales increased in August, and GDP growth has held up.

Stronger-than-expected consumer spending helped the U.S. economy expand at a surprising 3.8% annual rate from April through June — an upgrade from the government's earlier estimate of second-quarter growth.

Still, the gains are uneven. Moody's Analytics chief economist Mark Zandi noted that "the extraordinarily well-to-do" are driving much of that spending, with the top 10% of earners now accounting for roughly half of all consumer spending.

Markets have also proven resilient. After dipping in early April following Trump's tariff announcements, major stock indexes have recovered and sit near record highs.

Annual inflation rose to 2.9% in August, up from 2.3% in April, but that's still well below the 9.1% peak three years ago.

Will a government shutdown hurt the economy?

Historically, shutdowns alone haven't toppled a thriving economy, Callie Cox, chief market strategist at Ritholtz Wealth Management, wrote in a Monday analysis.

"They’ve never led to a recession or market crash, even if some have happened during recessions or market crashes," Cox noted.

Usually, Cox pointed out, shutdowns have led to some "initial shakiness" in the stock market, even if the losses are only temporary.

Today's economy, however, is already fragile. The Congressional Budget Office warned that the economic effects of a shutdown are "uncertain" and would depend on its duration and on "decisions made by the Administration."

Since 1981, ten funding gaps of three days or fewer have occurred, mostly over a weekend when government operations were only minimally affected, according to the Committee for a Responsible Federal Budget.

But if a shutdown stretched on for "several weeks," the CBO said, some private-sector entities might "never recover" all of the income lost as a result of the suspension of federal activity.

A government shutdown would mark yet another shock for the stock market to absorb, at a time when it's especially vulnerable, Cox pointed out.

"It’s tough to say how well investors will absorb it," she wrote. "I’d feel better about the shock absorption part if the economy were in a better spot, and this catalyst were a little more defined."