Politics

Shutdown Showdown: How Trump’s Layoff Threat Could Redefine the 2025 US Economic Crisis

Trump’s shutdown threat: Mass layoffs of federal workers, hurting a fragile economy, and delaying data.

October 1, 2025, 9:39 AM

President Donald Trump speaks passionately at a campaign rally

President Donald Trump delivers a passionate speech at a campaign rally at the Mohegan Sun Arena. By Evan El-Amin / Shutterstock.com.

Executive Summary

The Trump administration’s threat of permanent mass layoffs of federal workers distinguishes this potential shutdown, unlike past closures where employees were furloughed and later repaid.

The impending shutdown is set against a “fragile” US economy and “stumbling” job market, raising concerns for more significant and lasting economic impacts than previous government closures.

A shutdown would disrupt the collection and release of crucial economic data, such as jobs and inflation reports, potentially leaving decision-makers “in the dark” and harming the quality of future data.

The Story So Far

The impending US government shutdown in 2025 carries heightened concerns compared to historical closures primarily because the Trump administration has threatened to implement mass, permanent layoffs of federal workers, a significant departure from past temporary furloughs. This threat comes amidst an already vulnerable US economy and a “stumbling” job market, amplifying the potential negative impacts, and would also disrupt the collection and release of crucial economic data, leaving key decision-makers without vital information.

Why This Matters

The impending US government shutdown, unlike previous closures, poses a heightened risk of significant and lasting economic impacts due to the Trump administration’s stated intention to implement mass federal worker layoffs, which would further destabilize an already fragile economy. This, coupled with the likely disruption of critical economic data collection, could leave decision-makers “in the dark” and impede recovery efforts, making this shutdown potentially more dangerous than historical precedents.

Who Thinks What?

Many investors and economists have historically viewed government shutdowns as short-term events with temporary economic damage, often having limited long-lasting impacts on markets.

Economists and the Biden administration warn that President Trump’s threat of permanent mass layoffs for federal workers, coupled with a fragile economy and potential disruption to vital economic data, makes this impending shutdown a “really big economic problem” with more significant and lasting impacts than previous closures.

Some investment strategists caution that while markets have traditionally shrugged off shutdowns, the unique threats of permanent layoffs and an already vulnerable economy suggest this shutdown “may be different than what we’ve come to expect” for markets.

The US government is facing a looming shutdown, set to begin on October 1, 2025, which some experts warn could have more significant and lasting economic impacts than previous closures. Unlike past shutdowns, the Trump administration has threatened to implement mass layoffs of federal workers, potentially exacerbating an already fragile economy and disrupting critical economic data collection.

Historical Context of Shutdowns

Historically, government shutdowns have typically been short-term events with limited and quickly reversible economic damage. Even the record-long 35-day shutdown in 2018-2019 had few long-lasting impacts on the US economy or financial markets. Economists generally estimate that each week of a shutdown trims about 0.2 percentage points from gross domestic product (GDP), losses that are usually recouped upon reopening.

During past shutdowns, hundreds of thousands of nonessential federal employees were furloughed but later repaid and returned to work when the government reopened. This established pattern has led investors and economists to largely shrug off the temporary disruptions.

Unique Threats This Time

This potential shutdown, however, introduces a new dimension with the Trump administration’s threat of permanent mass layoffs for federal workers. Stephanie Roth, chief economist at Wolfe Research, described such a move as a “really big economic problem” and unsustainable over the medium-term. Jared Bernstein, a top economic adviser in the Biden White House, told CNN that permanent layoffs would be “profoundly unfair” and “bad economics.”

Impact on Economic Data

A shutdown would also likely delay the collection and release of crucial economic data, potentially leaving businesses, investors, and Federal Reserve officials “in the dark” when making key decisions. The Bureau of Labor Statistics (BLS) would not release the September jobs report if a shutdown occurs, and a prolonged closure could interrupt surveys for the October jobs report and harm the quality of future data, including vital inflation figures.

Nathan Sheets, global chief economist at Citigroup, noted that these challenges would “significantly increase” given the existing complexities of interpreting labor market data. The Labor Department has warned that a prolonged shutdown could harm the quality of the data it collects for future reports, including crucial inflation data that the Fed uses to make decisions about interest rates.

Market Reaction and Investor Concerns

Despite these warnings, Wall Street has largely remained unfazed by the prospect of a government shutdown, with stocks near record highs. Truist Wealth data indicates the S&P 500 has averaged no change during past government shutdowns, with US stocks even spiking by 10% during the shutdown that began in late 2018. Keith Lerner, Truist Wealth’s chief investment officer, suggested that shutdowns tend to mimic a “hurricane or a snowstorm, delaying most activity and quickly making up for it upon reopening.”

However, Bob Elliott, chief investment officer at Unlimited Funds, cautioned that while markets may be following the “same old playbook,” the unique threats this shutdown poses suggest the outcome could be different for markets as well. He noted that there “seems to be a risk that this shutdown may be different than what we’ve come to expect.”

A Fragile Economic Backdrop

The timing of this potential shutdown is particularly concerning, as the US economy in 2025 appears more vulnerable than during previous budget stalemates. The job market is already described as “stumbling,” making the threat of additional federal layoffs a significant risk. David Kelly, chief global strategist at JPMorgan Asset Management, emphasized that “the timing is bad. It’s a little bit more dangerous this time,” adding more chaos and uncertainty to an already volatile economic environment.

Outlook

The impending US government shutdown presents distinct challenges compared to historical precedents, primarily due to the Trump administration’s stated intention to implement mass federal worker layoffs and its occurrence amidst an already vulnerable economic climate. While markets have traditionally shrugged off such events, analysts suggest this episode could lead to more profound and lasting economic impacts, particularly through disruptions to employment and vital economic data.