The Impact of the Government Shutdown on the U.S. Job Market

The U.S. November jobs report is being released at a rather unusual time – on Tuesday, December 16, instead of the traditional first Friday of the month. This change is attributed to the prolonged impact of the government shutdown, the longest in history. Economists are forecasting that only 40 thousand new jobs were created last month, and that the unemployment rate should remain stable at 4.4%. Although this rate is considered low compared with historical standards, it is still higher than the average of recent years.

An Unprecedented Report

This report, however, will not come alone. It will include about half of the October employment data, creating a somewhat unusual situation. If it were not for the peculiarity of the moment, this report could easily be mistaken for a shopping promotion, like “buy one and get the second at 50% off”. Economists, however, are warning that the situation may be a bit confusing this time.

Daniel Zhao, chief economist at Glassdoor, highlighted the uncertainty surrounding large-scale operations like those of the U.S. Bureau of Labor Statistics. According to him, the disruptions caused by the government shutdown created a scenario in which analyzing the data can be a challenge. Therefore, he suggests that we should be cautious and humble when interpreting the numbers.

Why Only One and a Half Jobs Reports?

The monthly snapshot of the labor market, generated by the BLS (Bureau of Labor Statistics), is built from two main surveys. The first targets businesses and public sector entities, monitoring data such as payroll, wages and hours worked. The second survey focuses on households, and this collection is carried out in partnership with the U.S. Census Bureau. Interviewers visit homes, make phone calls, send emails and run online questionnaires.

However, during the shutdown that took place between October 1 and November 12, most federal statistical agencies had to halt their activities. This meant that a significant number of employees were temporarily laid off, and data collection was practically suspended. Zhao explains that it is very difficult for people to recall what they were doing in the past, which further complicated the situation.

As a result, the BLS announced that it could not provide data on the October labor force, including the unemployment rate, and chose to include that data in the November report. To compensate, the data collection period for both surveys was extended, which delayed the publication of the report, originally scheduled for December 5.

Expectations and Forecasts

Experts believe that moderate job growth is the most likely outcome for the report, but with a significant caveat. The impact of the disruptions caused by the shutdown should become more evident. The BLS, known for its transparency practices, inserts explanatory notes into its reports whenever there are technical issues or relevant contexts that need to be considered.

Although more than 700 thousand federal employees were placed on unpaid leave during the 43-day shutdown, significant negative figures for October are not expected. Economist Shruti Mishra of Bank of America stated that the establishment survey counts as employed those workers who received or expect to receive pay during the reference week. Thus, the negative impact of the shutdown may be minimal, as observed in similar events in 2013 and 2019.

Other Important Considerations

• The jobs report should include data from specific sectors, which will help better understand how the economy is performing.
• Consumer goods-related sectors may face declines, while healthcare and restaurants may continue to see growth.
• The slowdown in wage growth could pressure future consumer spending.

In addition, the trajectory of labor force participation rates and employment-to-population ratios are crucial indicators. According to Cory Stahle of the Indeed Hiring Lab, it is essential to observe whether, even with the creation of new jobs, people are really feeling motivated to look for work.

In the end, if job growth continues at a low pace, this could have a significant impact on the labor market and the economy as a whole. Therefore, the expectation is that the November jobs report, although atypical, will offer an important glimpse into the health of the American labor market.