Impact of Government Shutdown on U.S. Economy
Bank of America’s CEO, Brian Moynihan, expressed concerns that the ongoing government shutdown is harming the U.S. economy and putting jobs at risk. He highlighted how delayed agreements, halted IPOs, and missed approvals are all consequences of the situation.
As a result of the shutdown, the Commerce Department’s initial GDP forecast for the third quarter has been postponed. Interestingly, other data sources indicate that economic growth is still on track this quarter.
Originally, the Bureau of Economic Analysis was set to publish preliminary third-quarter GDP estimates, but the shutdown has caused furloughs for non-essential employees, preventing a full report from being released.
The Bureau of Labor Statistics also faced challenges, as it couldn’t provide September employment statistics because of the shutdown. However, to compile the September Consumer Price Index—which plays a crucial role in the Social Security Cost of Living Adjustment—the agency temporarily recalled some employees to disclose its inflation report.
Despite the stalling of official GDP estimates by the Department of Commerce, two other agencies still managed to release their estimates for third-quarter GDP growth.
Federal Reserve Actions Amid Uncertainty
The Federal Reserve Bank of Atlanta utilizes a forecasting model, known as GDPNow, which acts as a sort of “nowcast” for the GDP prior to its release. While not an official estimate, it offers an approximation based on the current available economic data. As of October 27, the Atlanta Fed indicated a 3.9% growth for the third quarter.
Meanwhile, inflation experienced in September was notably above the Fed’s target, coinciding with discussions around interest rate cuts.
The government shutdown, which began on October 1, has left lawmakers from both parties unable to agree on how to fund the government, further contributing to the uncertainty surrounding economic data.
On another front, the Federal Reserve Bank of New York provides a staff nowcast that differs slightly by including probability ranges for GDP growth. On October 31, it estimated third-quarter GDP growth at 2.35%, with a 50% chance of growth falling between 1.32% and 3.41%.
The Fog of Economic Data
Fed Chairman Jerome Powell remarked that the delays caused by the shutdown create a “fog” for policymakers, complicating their ability to make informed decisions.
Earlier in the year, the Department of Commerce revealed that the U.S. economy contracted by 0.5% in the first quarter. Following that, the Bureau of Economic Analysis reported 3.8% growth in the second quarter. Combining these figures with the Atlanta Fed’s 3.9% for the third quarter results in a cumulative GDP growth rate of approximately 2.4% for the first three quarters of 2025.
Conversely, the New York Fed’s estimate for third-quarter growth stands at 2.35%, bringing the average growth rate for the first three quarters of the year to about 1.88%.
