With Washington at an impasse, the U.S. government shut down on October 1, the start of the federal 2026 fiscal year, after Congress failed to pass a funding bill. While government shutdowns have historically been short lived, this one feels different. So far, markets remain unfazed.
The shutdown presents two key challenges for the economy: the drag on growth from halted government operations, and the added uncertainty it creates in assessing economic data and gauging overall economic conditions.
According to the New York Times, roughly 600,000 federal workers have been furloughed, while another 700,000 “essential workers” are being required to work without pay. If the shutdown stretches into next week, consumer spending could begin to soften as these workers miss their first paychecks.
Adding to the strain, the administration has frozen billions of dollars in funding for states, municipalities, and climate projects, and has threatened to convert many furloughs into permanent layoffs.
A further complication is the interruption of data collection and publication of key economic reports, such as September’s employment and CPI releases. This makes it harder to assess the effects of the immigration crackdown on jobs and the impact of tariffs on inflation.
To help fill the gap, Torsten Slok, Chief Economist at Apollo Global Management, has compiled a list of alternative data sources. While these can provide insights, they are not as reliable as official data, and the longer the shutdown continues, the more difficult it will be to track the direction of the economy.
For September, non-agency labour market data have painted a discouraging picture.
First, the ADP measure of private employment, a monthly estimate based on payroll data from private businesses, shows a continued slowdown in job growth, with payrolls declining in three of the last four months. While not perfect, this measure mirrors the broader trend seen in the U.S. Bureau of Labor Statistics’ (BLS) official private employment figures.
Second, the Conference Board’s Labor Differential, which gauges how tight consumers perceive the labour market to be, slid to a fresh low. This signals that the unemployment rate continues to climb as finding a job becomes increasingly tough.
Finally, the ISM Manufacturing Employment index stood at 45.3, a level consistent with declining factory payrolls. The series has remained below 50 for eight consecutive months, and there is no evidence so far that reshoring has boosted manufacturing payrolls.
While these are second-tier labour market indicators, they provide the clearest picture available amid the government shutdown: the labor market is softening.
So far, importing companies appear to have absorbed most tariff costs rather than passing them on to consumers. That is likely to change in the months ahead, particularly when consumers receive income tax refunds in early 2026, making them better able to absorb higher prices. How much of these costs ultimately flow through to consumer prices remains uncertain.
In the absence of timely government data on the labour and inflation, the Fed may be more inclined to err on the side of being too easy rather than too tight in its rate policy. Reflecting this, futures markets are now pricing in an 84 per cent probability of two more 25-basis-point rate cuts this year, up from 64 per cent just a week ago.
Housing Affordability Watch
CMI monitors the latest developments and offers insights on solutions to Canada’s housing affordability crisis
In Canada’s tight housing market, rent-to-own programs provide an option for buyers with steady income but weak credit or insufficient savings for a traditional down payment and mortgage. These arrangements offer a structured path to homeownership, allowing tenants to plan for a future home purchase while building equity and improving their finances and credit over time.
Our latest Housing Affordability Watch examines how rent-to-own works, the benefits and drawbacks to buyers and sellers, and the role these programs play in supporting access to housing. Read it here: Rent-to-Own – A Pathway to Affordability
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