Groundhog Day and Another Government Shutdown

Editors’ Note: MarketMinder is politically agnostic. We prefer no politician nor any party and assess developments for their economic and market implications only.

Punxsutawney Phil saw his shadow today, predicting six more weeks of government shutdown. Just kidding! We won’t hazard a guess at when the latest US government shutdown will end. However, readers may feel like Phil Connors from the 1993 film Groundhog Day, considering we just had a shutdown not too long ago. That recent history is the clearest evidence yet federal government shutdowns don’t shut down markets or America’s private sector-driven economy. We don’t think this one will be different.^[i]

The current partial shutdown stems from Congress missing its midnight government funding deadline last Friday. Though the Senate passed five bills late that evening to fund a bunch of agencies through September—and approved another to fund the Department for Homeland Security for two weeks—the House wasn’t in session until Monday. Upon reconvening, House Democrats indicated they wouldn’t help the Republicans pass any package without major immigration-enforcement changes. Republicans have a tiny majority in the House (218 – 213, with 4 seats vacant) and are struggling to keep all of its members (many of whom oppose the deal) on board.^[ii]

The House vote won’t happen until Tuesday, at the earliest, but let us put this partial shutdown in perspective. First, even if it lasts beyond tomorrow, it won’t be as broad as October’s, which hit all federal agencies and programs. Those affected this round include Defense, Homeland Security, Labor and Treasury, among some others. For data nerds, this means January’s jobs report won’t be released as scheduled this Friday—annoying (especially for your friendly MarketMinder Editorial Staff) but not an economic gamechanger. However, many departments have received their full funding for the fiscal year ending September 30, including Justice, Commerce, Interior, Veterans Affairs and Agriculture.^[iii]

Maybe this shutdown is short. Maybe not. But we have recent evidence shutdowns aren’t automatically negative for the economy or markets. For as much attention as federal closures receive, their actual economic effect is limited. Consider: On a value-added basis, the federal government comprised 3.6% of Q3 2025 GDP—dwarfed by private industries (88.8%) and smaller than even state and local government’s share (7.6%).^[iv]

Don’t take our word for it. Private companies themselves have said shutdowns don’t cease activity. Per the Institute for Supple Management’s (ISM’s) October services purchasing managers’ index (PMI), the federal government shutdown elicited a few responses, and some businesses indicated it could affect economic activity and some employment decisions.^[v] As one respondent put it, “The federal government shutdown has slowed many non-essential projects.”^[vi] The following month, after the shutdown ended, another respondent said that the, “Government shutdown paused some projects due to permits.”^[vii]

But reviewing ISM’s services PMI results overall, September (50.3), October (52.0) and November (52.4) all exceeded 50, indicating expansion and implying America’s largest economic sector grew during the shutdown stretch. So it appears whatever the effect was, it wasn’t major.

America’s shutdown didn’t disturb markets, either, as the S&P 500 rose 2.5% during it, not far off the MSCI World ex. US’s 3.1%.^[viii] No shutdown ever caused a bear market or recession, and this is just the latest example. So whether this latest edition ends swiftly or drags a little longer, we see little reason to think the story will be so very different than shutdowns of the past. It is even smaller in scope than the one we just saw—which was record-long. And it had little identifiable market effect.