Amid Trump shutdown, federal unemployment rises by record numbers

The ongoing federal government shutdown, now the second longest shutdown in American history, has contributed to the fastest growth of unemployment claims from federal employees since the past shutdown nearly seven years ago.

The United States Capitol Building in Washington D.C., www.higheredtoday.org.

The shutdown, the second in the overall period which the executive branch was controlled by Donald J. Trump, has contributed to 7,224 unemployment claims (initial) in the week ending on October 11th, the single highest increase since early 2019, when the government was undergoing a shutdown due to border wall spending in Trump's first administration. Nationwide, initial jobless claims decreased to roughly 215,000, below the estimated 234,000 by experts from the previous week, reflecting the overall downturn specifically among federal employees, not on a nationwide basis.

The effects of the ongoing government shutdown are most evidently to blame. While federal employees were initially furloughed and not fired - meaning they were still available to their positions but did not receive compensation, now the over two-week duration without paychecks for many of these workers have led to an increase in quits from these employees seeking immediate salary sources. Nearly half of Americans have expressed at least a somewhat degree of apprehension regarding the impact of the shutdown on their communities, especially in terms of economics.

Nancy Vanden Houten, lead U.S. economist at Oxford Economics, highlighted this very phenomenon contributing to the mass exodus of workers from the currently shut-down government. "Workers struggling to keep up with bills while they go without pay are likely filing for unemployment benefits even if they think they will eventually get back pay," she stated. This is very true, as many of these workers live paycheck-to-paycheck, and risking keeping their current roles instead of finding a new one is an opportunity cost far too grand to make for most.

This news is certainly harmful as a testament to the economic viability leading into the end of 2025, but for investors, it offers a more positive opportunity - interest rates. With the Federal Reserve's October meeting looming over markets, immediate layoffs/increases to the unemployment rate will almost certainly bolster the chances of an interest rate cut, likely a 25-basis point one. The Federal Reserve, per Jerome Powell's remarks in Jackson Hole in late-August and through other signals like Fed minutes, has shifted priority from combating inflation to the labor economy in its fiscal policy decisions.

Carl Weinberg, Chief Economist at High Frequency Economics, suggested that this recent change in unemployment numbers could be a signal for layoffs to come, arguing that, "One datapoint does not make a trend, but markets will see this big uptick in claims as the pop in layoffs that we have been waiting for." The "[what] we have been waiting for" part is important here - investors have been hungry for weak job data in recent weeks, and this might be the ignition for a surge in economic optimism for a broader rate cut among other policy changes.