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The government shutdown started at midnight on Wednesday, but it'll take a while to feel its full impact. Grebory Cordy covers the White House for Bloomberg, and he says, shutting down the US government is a process.
Actually coming into work on Wednesday morning, there's more traffic in DC than there's been in a long time in this sort of post COVID world that we're in, because federal workers who have been working from home have to come in to shut down the government, lock away their files, put their out of office on meet with their boss one last time, make sure everything's set before they can go back home and be furloughed.
And it's at that point, Gregory says, when you and I will start to feel the effects of a government shut down in earnest. You'll call a government office with a question and no one will pick up. Some scientific research will stop, and agencies that collect and disseminate data will stop doing that vital work.
I will give you one example of a very specific way that this could impact seventy million Americans, and that is that the October Consumer Price Index number is essential for the social security Administration to compute the cost of living adjustments for retirees who depend on social ob security benefits. Social karement Administration has not said how they're going to do that. If they're missing a month's worth of data, will they just use eleven months? Will they delay it?
That just a routine use of government data that happens. People don't think about it. But all of these mechanisms are built on government data, and if you don't have the government data, then you can't adjust for inflation.
Policymakers at the Federal Reserve also rely on those inflation numbers and on data about the labor market. The latest monthly jobs numbers were scheduled to be released on Friday, but because of the government shutdown, they won't be Molly Smith is an economics editor at Bloomberg, and she says this is likely to make the Fed's next rate decision at the end of October all the more complicated.
Remember, the Fed just lowered interest rates for the first time this year. They've been thinking okay, Inflation has been running still well above target, but the last jobs reports seem to suggest that the labor market is starting to really falter a bit, and that We've got to do something. And that's what all of this has been hinging on about. Expectations for another two cuts this year, expectations for any
next year. It's really all about the labor market and that so depends then on what the government's data says.
I'm David Gera and this is the big take from Bloomberg News Today on the show. A government shutdown impacts the economy and economic data. What that means for policymakers, investors, and everyday Americans who depend on it. The last government shutdown started in December of twenty eighteen, lasted for thirty five days. Donald Trump was the president, and there's been a string of them, more than a dozen shutdowns since
Ronald Reagan was in the White House. But when I sat down with Bloomberg's Gregory Cordy and Molly Smith, Gregory told me this one is unique.
It feels different for a number of reasons. One is, we've seen more political poorization. We have Congress as closely divided as it's ever been in its history, just in terms of the division between Republicans and Democrats. But it's also different because this is a Trump shutdown in his second term, where President Trump has decided to do things a little bit differently, and so this shutdown, he has threatened to not just furlough federal workers, but look for
ways to fire them. In the first hours of the shutdown, the Department Transportation used as an excuse to freeze eighteen billion dollars worth of infrastructure funding for New York City on the pretext that, well, you know, we don't have the Department of Transportation contracting officials that can release this money.
So there may be a number of things where these were things the government did that the Trumpet administration didn't particularly enjoy doing in the first place, and the shutdown gives them a very convenient excuse not to do that. In the meantime, the things that they want to do,
they have found ways to do them. And so one of the things that we found looking through these shutdown plans is it looks like fewer federal employees will be furloughed because they've gotten creative in finding other sources of funding and finding sort of new legal interpretations to say, even though the law says Congress has said we can't spend money if it hasn't been appropriated by Congress. These
are essential functions. They've they've broadened that definition to allow more federal workers to show up to work even though they won't get paid until the shutdown ends.
Molly, it's at moments like this one when I think a lot of Americans become acquainted with or reacquainted with all that the federal government does and how it interfaces with with their lives. Economic data is a part of that. We think about what the Labor Department does or the Congress Department, but really all of these agencies are producing data that's important. Could you just describe some the impact of government shutdown has on their ability to collect and disseminate that data.
So this totally ceases operations across these federal agencies, and we've seen that in the most recent contingency plans that the Department's released going into this shutdown. So for the Buerau of Labor Statistics, which is housed within the Labor Department, this is the one where we would get the employment report from every month, where we would get the main consumer price index, that's the key inflation gage that we look to every month. These reports will not be coming
out on time as scheduled. All of these data releases are going to be delayed, including the upcoming jobs report that was supposed to be scheduled for this Friday. So it really just casts an even bigger cloud over the state of the economy right now because federal data is really regarded as the gold standard for how to gauge what's happening in the economy.
Could you just sort of help us understand how these economic data are used across the economy broadly.
Yeah, So the big one, obviously for people who listened to Bloombergy, is going to be whatever the Federal Reserve has to say. So everyone's really wondering, then if this shutdown does last into those latter stages that we have a Federal Reserve meeting at the end of this month, will they have the latest jobs report by then? Will
they have the latest CPI by then? Will they have everything else that the BLS puts out that the agencies within the Commerce Department, like the Census Bureau and the Bureau of Economic Analysis puts out We just don't know yet, but it affects every day Americans too.
You know.
Economic data is maybe it's not something that regular people are using day to day, but in certain industries and business planning, and really all levels of government, in all levels of decision and investment making. This is so crucial.
A lot of people who work in construction or urban planning would want to know what kind of estimates there are if you were trying to do some kind of new residential or commercial construction project, for example, and you want to gauge what the local demographics are like to see, well, if we're going to be building an apartment complex, who lives in this area, what kind of wages do they make, what kind of commute do they do to work. This is all things that federal data point us to.
Gregre I know you've been sifting through contingency plans that we've seen from omb the way that the federal government is thinking about how the shutdown might unfold. When you look at pass shutdowns, what can we learn, what can we ascertain from how they approached the release of data, the collection of data, this particular facet of what the federal government does.
Well. One thing that's different this time is this is the first shutdown that we've had since the Obama shutdown of ten fifteen years ago that has happened at the beginning of a fiscal year, and so we all know the data comes out of the first of the month. The last time we had a long shutdown, it was over the holidays. It was kind of sleepy. That was
pre COVID. I don't think the FED was watching the jobs numbers quite as closely as they are this time around, and so frankly, a lot of federal data didn't come out in previous shutdowns, and people didn't miss it quite as much. It's as much about this economic moment that
we're in as it is about the shutdown. But also remember there's a backdrop here where President Trump had fired the commissioner of the Bureau of Labor Statistics, has not been happy with the data that he's getting out of the Labor Department anyway, and so a shutdown means we don't get the data. But it also means for President Trump that there's no chance of bad news coming out of his administration on the labor market, at least as
long as there's a shutdown. And of course that will catch up eventually, and those jobs numbers that we get, when we do get them, will include a good number of maybe seven hundred and fifty thousand federal employees who will be unemployed during that stretch, not to mention maybe another one hundred and fifty or more federal employees who took the deferred resignation program that expired at the beginning
of this physical year. As of Wednesday, those are now the federal payroll, and so there are going to be a number of shocks to the next jobs report when we get.
It coming up. What it'll mean for the Federal Reserves, specifically not having new data on the US economy and what policymakers, economists, and investors will rely on instead of those government reports. The Federal Reserve's rate Setting Committee is scheduled to meet next on October twenty eighth and twenty ninth, and that'll happen whether or not the government is open.
In September, FED Chair Jerome Powell signaled he and his colleagues are open to another rate cut this year, but that will depend on the latest data, especially data on the jobs market.
We're in a meeting by meeting situation.
We're going to be looking at the data. The FED has been dealing with policy uncertainty whether it should cut rates and if so, by how much, But it's also been facing personnel uncertainty. On Wednesday, the Supreme Court, which also stays open during government shut down, said President Trump can't fire FED Governor Lisa Cook immediately. The court will hold oral arguments in January. I asked Bloomberg's Molly Smith about how the FED is handling all of this uncertainty.
It's a really feisty time at the FED right now, which is I feel like, not a word we use a lot to describe the FED. You know, it's usually the FED as well as some of these other agencies that I've named, tend to be you know, they function best when you don't really hear about them. But there's just been so much changeover at the FED recently, obviously with Lisa Cook's position. We had a different FED governor resign recently and that opened up a spot for Stephen
Myron to come into. So that was one of Trump's top economic advisors who recently just joined the FED. Of course, we have Chair J. Powell's term ending next year. There are all these moving parts right now that I think this maybe adds a little bit of stability the time when there hasn't been a lot of stability at the FED. So I'm sure, there's going to be so much more on this to come that I don't think we've heard the last of what's happening with Lisa Cook yet.
When FED policymakers gather in Washington at the end of the month, they're going to review all the economic data they have, and I asked Molly what they'll rely on if they don't have a new jobs report or a new CPI report.
So there are a lot of other companies that they basically will look at their own metrics of their payroll providers like ADP is one of them. Revellio will scrape through job profiles online LinkedIn and indeed do similar metrics using their own job platforms. This is basically what we're left with. We just saw a metric from ADP about their employment gauge in the month, which a lot of economists typically don't like to look to already because it
doesn't closely align with what the BLS puts out. And then on top of that, they had some issues adjusting the data this time around, so that made it even more difficult to interpret. But there are some other sources that compile announcements on layoffs, so I would say it's most expansive on the labor market side. There are a few on the inflation side too. We do get some others on consumer spending. Probably the best of what we
see is on the housing side. The National Association of Realtors is usually the go to source for sales of existing homes in the US, and that's based on contract closings, and they also do a leading indicator based on contract signings. So we still do get a decent amount of housing data, granted not on the new homes or residential construction side. That all comes from Census. And we do have all these private sector sources, but a lot of them rely
on what the government has to say. They don't operate totally independently of what the beer of Labor Statistics has to say. So, needless to say, there are still holes. They're just not going to add up to be the full picture we'd have otherwise.
How did you read the numbers from ADP this morning a miss compared to what the media and estimate was saw revision from the last period as well. What does that tell you bearing in mind what you just said, which is it's not going to give you the same picture that the Labor Department data would.
It was a particularly challenging ADP report to dissect because they also then used a separate measure from the BLS to readjust their data, so that resulted in the payrolls dropping as much as they did. They fell thirty two thousand in the month of September just for reference. Economists that Bloomberg had surveyed had put in immediate estimate of a gain of fifty one thousand, So it was a bit challenging to get through to see what this meant
with the data methodology. Some economists even said they couldn't totally make sense of it, and it just made it even more difficult to rely on what ADP has to say. Granted if you just take a step back, though, I don't think this changes the overlying trend that we're seeing in the labor market, that it is weakening, that we are seeing pay gains soften, we are seeing hiring slowed down, there's less demand for workers. I think right now the question is just the speed of which that's happening.
At Gregory, I'm curious sort of how policymakers in Washington are reacting or not reacting to this shutdown. I don't think that we've gotten a statement from the Federal Serve, for instance, or from any of these agencies that goes beyond just the kind of contingency plans they're putting in place. But what's the reaction, ben broadly is, as you've watched this unfold over the last twelve hours or so, you know.
The thing about shutdowns is, I think we've just kind of got inured to them somewhat. This is the case where we have Congress unified control by Republicans, we have Republican president, but Republicans don't have that supermajority in the Senate that allow them to get past a possible Democratic filibuster. It's a symptom of our polarization, but also some very strong personalities here with Chuck Schumer and Hakeem Jeffries and President Trump. We need to stop these premiums from going
up dramatically. We need to do it now. We're in the midst of an incredible crisis, a healthcare crisis that Republicans have caused.
Could be because the Democrats are they don't know what they're doing.
They are dug in and it's very difficult to see where the off ramp is.
This is a game of chicken, Molly, to borrow phrase from Gregory here, inured? Is Wall Street likewise inured when it comes to these shutdowns, or are we seeing markets react to prospect of this unfolding differently the prospect of they're being perhaps massive layoffs that unfold during the course of the shutdown.
I was going to piggyback on that point anyway, because this is just like something we're all just like, oh, okay, here we go again. But as far as the market reaction, I haven't really seen much of one, I think, And that kind of also speaks to the fact that like, yeah, we know the drill, we've seen how this shakes out, but we don't know how long this is going to go, what other services are going to be affected by this, how much data is going to go buy that we
won't see. So I think it's still a little early just to gauge how Wall Street's feeling about it.
We've talked awful lot about economic data, and Molly, let me ask you lastly just about the economy, and you've mentioned how the labor market is showing signs of cracking. Their issues with it. As Gregory brought up, there is the very real prospect here that we won't just see furlough as we're going to see layoffs as a result
of this shutdown. What does that mean for the economy as you kind of forecast out and think about the impact that could have on as you've described it, very fragile US economy.
I mean, Gregory raised a great point too, that we were already expecting to see federal government employment fall in the next jobs report because of what he had said with the deferred resignations offer, is that if you had accepted one of those, September was the last month you would be on payroll. So the October jobs report will show the impact of that. So just if we have that many more layoffs as a result of this shutdown,
it's just going to exacerbate that. Whether that ripples out to the broader economy, though, still really remains to be seen.
Keep in mind also that contractors, federal contractors could be effected, as we're seeing in the New York City example, where the Department Transportations frozen money for the second Ave Subway and the Hudson Tunnel project. And so that's eighteen billion dollars worth of construction that at the very least is going to be delayed. And you know, when you are a contractor, you very often live job to job and
paycheck to paycheck. So if the Trump administration extends this shutdown to say, hey, look, you know we don't have the contracting officers that can provide for infrastructure projects in key places across the country, there could be a little bit of a domino effect there as well.
This is the Big Take from Bloomberg News. I'm David Gurra. To get more from The Big Take and unlimited access to all of Bloomberg dot com, subscribe today at Bloomberg dot com slash podcast offer. If you like this episode, make sure to follow and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow.