Missing Government, Missing Data

Episode Summary

Executive Summary: The episode focuses on the U.S. government shutdown, the loss of federal data releases, and what private indicators suggest about a weakening but still positive labor market. The hosts debate shutdown duration, likely economic damage, Fed implications, and the politics of ACA subsidies, military pay, and federal-worker back pay, while also highlighting rising consumer credit stress and recession risk.

Main Topics: Government shutdown and political stalemate (Priority: 5/5): The hosts lay out the gridlock in Congress over a clean continuing resolution versus Democratic demands to extend ACA premium tax credits and reverse Medicaid cuts, with October 15 and later deadlines as possible forcing mechanisms. Alternative data in the absence of federal releases (Priority: 5/5): Because official data are delayed, the discussion surveys private sources for labor market and economic signals, including ADP, Revelio, LinkedIn, Challenger, NFIB, regional Fed surveys, UI claims, and trade proxies. Labor market is weak but not collapsing (Priority: 5/5): Private indicators point to soft hiring, modest job creation at best, and rising layoffs, but not yet a sharp rise in unemployment claims or broad labor-market breakdown. Economic consequences of a prolonged shutdown (Priority: 4/5): The hosts distinguish between short shutdowns that barely matter and longer ones that reduce GDP, disrupt contractors and services, impair travel and agency functions, and create consumer and market turbulence. Fed policy implications and data blindness (Priority: 4/5): With the Fed meeting soon, the shutdown may leave policymakers without jobs data and possibly using only CPI and alternative indicators, potentially reinforcing a rate cut. Credit stress and recession risk (Priority: 3/5): The episode closes with discussion of alternative credit data showing elevated subprime delinquency rates and the team’s recession probabilities clustered around the mid-30% to mid-40% range.

Key Arguments: Private labor data are signaling a slow, weak labor market: job growth is likely around zero to 25,000 per month, with some estimates closer to 20,000-30,000. ADP and Revelio Labs are giving somewhat different short-run signals, but their average historically tracks BLS private payrolls closely. The shutdown’s economic effect is highly non-linear: one to two weeks is mostly manageable, three to four weeks starts to matter, and a month-plus becomes macroeconomically significant. October 15 is the key near-term deadline because missed military pay could force a deal, but if the government only passes a military-pay bill, the shutdown could continue beyond that. The Fed will likely still cut rates at its late-October meeting, especially if jobs data remain unavailable and CPI is benign. ACA premium subsidies are politically potent because households will directly feel higher insurance costs, making Democrats less likely to back down. Federal-worker back pay is unlikely to be withheld because it is against the law and inconsistent with prior practice, despite rhetoric from the administration. Rising subprime credit delinquencies suggest growing stress among lower-income households even if headline labor data remain stable.

Data Points: Average length of government shutdowns: 8.1 days - Used in the stats game to identify the historical average duration of prior shutdowns. Number of government shutdowns historically: 21 - Referenced in the stats game as the total count of shutdowns. Longest government shutdown in history: 34 days - The 2018-19 shutdown was cited as the longest, though it was partial rather than full. ADP private payroll trend: Jobs shed for the last 3 months - Used as evidence that private payroll growth has deteriorated. Revelio Labs September estimate: +60,000 jobs - A softer but still positive private payroll signal. LinkedIn estimate: About 50,000-55,000 jobs - Mentioned as another private labor estimate, recalled from memory. UI claims, week ending Oct. 4: 234,000 - State-level aggregation of claims during the shutdown, up from 224,000. Change in UI claims: +10,000 - Week-over-week increase in state-aggregated claims. Carlisle Group September employment estimate: +17,000 - Portfolio-company-based estimate bench-marked to payrolls. Estimated underlying monthly job growth: 0 to 25,000 - Consensus view from the discussion after combining private indicators. Alternative estimate of underlying job growth: Around 20,000 to 30,000 - Brendan and Justin’s broader view of weakly positive payroll growth. Federal jobs lost so far: About 95,000 - Approximate federal payroll reduction already realized. Expected additional federal payroll loss in October: 80,000 to 100,000 - Projection tied to the end of buyout arrangements and fiscal-year accounting. Cost of extending ACA premium tax credits: $350 billion - 10-year cost of continuing the enhanced subsidy policy. Annualized GDP hit from a 2-week shutdown: About 0.3 percentage points - Model estimate of the growth drag from a short shutdown. Duration threshold for major macro damage: Over 4 weeks - Hosts argued shutdown costs become much more severe after a month. Federal interest payments in fiscal 2025: $1.029 trillion - CBO figure highlighted during the stats game; first time above $1 trillion. Subprime auto-loan delinquency rate: 10% - Average delinquency rate on subprime auto loans through September. Broad credit delinquency rate: 9.04% - Alternative data measure of credit stress mentioned as very elevated. Recession probability estimates: 30%-45% - Discussion of current recession odds; Mark at 40%, Marissa at 35%, Justin 30%-40%, Brendan 45%.

Pivotal Quotes: "The economic consequences of all this ... are non-linear." — Mark Sandy: Summarizing how shutdown impacts escalate sharply after several weeks. "We're going to blow through October 15th." — Mark Sandy: His political judgment that the shutdown will likely extend beyond the expected military-pay deadline. "It could be that the FAA concerns mount a little bit more quickly." — Justin Begley: Explaining one possible near-term forcing mechanism if travel disruptions worsen.

Implications: Listeners should expect weak labor growth, delayed official data, and rising shutdown risk to Fed decision-making and markets. If the shutdown lasts past two weeks, economic and political costs rise sharply, especially for contractors, travelers, and low-income households.