The U.S. government has officially shut down for the first time since January 2019. While this makes headlines, shutdowns are not a new phenomenon. Since the modern budget process was adopted in 1976, there have been more than 20 shutdowns of varying length. Most have been short-lived, lasting only a few days as lawmakers quickly strike deals to avoid public backlash. Occasionally, they have stretched on longer—such as the 35-day shutdown in late 2018 and early 2019, the longest in history—when political standoffs harden. Historically, however, the average shutdown lasts about a week, underscoring that these episodes are more about political brinkmanship than long-term fiscal reform.
Economic Impact: Temporary and Limited
The near-term economic impact of a shutdown is typically modest. Ned Davis Research estimates a 0.1%–0.2% drag on real GDP for each week the government remains closed. Many federal employees are furloughed during shutdowns, creating a temporary dip in spending, but these effects are usually reversed once employees receive back pay when the government reopens. However, there is talk that some employees may not receive back pay, but that hasn’t been confirmed. In other words, shutdowns can interrupt the flow of economic activity, but they rarely cause lasting damage.
This Time’s Context: More Uncertainty, Not Crisis
The timing of this shutdown adds another layer of uncertainty to an already mixed economic picture. Growth, inflation, and policy signals are sending conflicting messages, and while we believe the positive drivers still hold the upper hand, the margin for error has narrowed. One notable risk is the delay of key economic data releases. As the Fed has resumed rate cuts and employment concerns rise, timely data is essential for policymakers and markets. A data blackout could complicate the Fed’s decision-making and potentially reduce the odds of another rate cut later this month that markets were expecting.
Market Perspective: History Suggests Resilience
Shutdowns aren’t typically a reason to panic or change investment strategy. Historically, markets have shown resilience. According to Ned Davis Research, the S&P 500 has averaged a gain of 0.5% three weeks after a shutdown and 1.5% two months after. Every episode has unique circumstances, but the pattern suggests that markets view shutdowns as temporary political noise rather than structural economic threats.
Final Thoughts
Government shutdowns are disruptive but not transformative events for the economy or markets. They’ve become recurring features of the political landscape—more like staged crises than fiscal emergencies.
We are not making portfolio changes in response to this shutdown. Instead, we will continue to focus on incoming economic data and the fundamental drivers of market performance.
If you have any specific questions or want to talk about the impact an extended government shutdown might have on your specific situation, contact our office or email help@bloomadvisors.com to schedule an appointment to connect with an advisor.
