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Dow Jones NewsNov 17, 3:22 AM UTC
MW The economy survived the government shutdown - but all is not well
By Jeffry Bartash
The U.S. is facing a tough labor market and persistent inflation
A sign welcomes visitors to the National Gallery of Art in Washington after the reopening of the federal government.
The U.S. economy didn't get any better during the longest government shutdown in history, but the good news is that it probably didn't get much worse.
That's the prevailing view among Wall Street economists based on the limited amount of information available to them - most notably, the weekly tally of how many people applied for unemployment benefits in each state.
These so-called initial jobless claims stayed remarkably low during the 43-day shutdown. They totaled 218,000 in the final report before the impasse began on Oct. 1, and were just slightly higher at 228,000 in the most recent week, economists estimate.
"Encouragingly, our sense is there haven't been major shifts in the U.S. economy since the government shut down at the start of October," said Oren Klatchkin, financial-markets economist at Nationwide.
A final verdict will have to wait, of course, until economists can sift through a steady of stream of postponed reports on hiring, retail sales, consumer spending and so forth that will be released over the next month. The long shutdown created a data "black hole" of sorts from October through mid-November.
During the shutdown, economists had to resort to a bevy of private reports to try to piece together what was going on. The only information derived from government data were the state reports on jobless claims.
Even though the weekly claims report is produced by the federal Bureau of Labor Statistics, the states also publicize the data. That allowed economists to do their own calculations.
"The most recent jobless-claims data continues to point to no sharp weakening in the labor market," Citi economists wrote in a note to clients.
A low rate of layoffs is critical for the ongoing U.S. economic expansion, now in its fifth year. The unemployment rate, which stood at 4.3% before the shutdown, is still extremely low by historical standards, despite a recent rise.
Hiring has slowed to a crawl since the spring, however, and it's much harder now to find a job. Yet as long as unemployment remains low, Americans should have enough confidence to keep spending to grease the wheels of the economy.
That's not to say there haven't been warning signs.
A flurry of large companies have announced widespread layoffs, with the most recent being Verizon (VZ). Still, there hasn't be a pronounced shift in jobless claims so far.
"The job market has cooled, but some of this cooling likely reflectsimportant structural changes in labor markets, rather than a cyclical downturn in the economy," said Jeffrey Schmid, president of the Federal Reserve Bank of Kansas City.
Schmid said hiring has slowed partly because of the ongoing retirement of baby boomers and a sharp decline in immigration.
"A smaller workforce leads to both fewer new jobs and fewer unemployed people looking for jobs," he said.
A weaker labor market is still a source of worry, though and bears close watching as the end of the year approaches. The other big threat to the economy is persistent inflation.
Price increases were beginning to fade until President Trump in the spring jacked up U.S. tariffs to the highest levels in decades. Inflation is still running at a 3% annual rate, well above the Fed's 2% goal and almost double the average increase each year from 2010 to 2019.
Privately produced reports suggest little change in prices during the shutdown, but they are not as comprehensive as the government's inflation barometers - chiefly, the consumer-price index and personal-consumption expenditures index.
And even if private data is accurate, economists and business leaders say, the full effect of tariffs on inflation probably hasn't been realized yet.
Lingering inflation could discourage the Fed from cutting its key U.S. interest rate in December for the third meeting in a row. The prospect of the Fed staying on the sidelines next month contributed to a big selloff in the stock market this week after the shutdown ended.
The combination of a tougher jobs market and elevation inflation is having an impact on the economy. Middle- and lower-income Americans are feeling more financial strain, forcing them to cut back on spending, go into debt or fall behind on car and credit-card payments.
Yet overall consumer spending - the main engine of the economy - has held up well due to a big increase in wealth for upper-income households, thanks to a prolonged bull market.
The U.S. has kept growing despite a "two-speed" or bifurcated economy - but any prolonged slump on Wall Street could threaten the status quo.
-Jeffry Bartash
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11-16-25 2222ET
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