Federal Reserve Steps in Amid Prolonged Government Shutdown, Uses Private Data to Estimate Unemployment

As the federal government shutdown enters its 31st day, the U.S. Department of Labor remains unable to release official unemployment statistics. In response, the Federal Reserve Bank of Chicago has stepped in, utilizing private-sector data and its own economic models to estimate the nation's unemployment rate for October 2025. Their analysis indicates that the unemployment rate has remained stable at approximately 4.35%, showing little change from August's official figure of 4.3%.

The Chicago Fed's approach combines real-time private-sector data with prior official labor statistics to produce these estimates. While acknowledging that the absence of official data may affect the accuracy of their model over time, the institution estimates that the short-term impact is likely minimal. This estimate aligns with other economic indicators, such as a slight increase in state-reported unemployment claims, suggesting that the job market is cooling but not deteriorating rapidly.

The ongoing government shutdown, which began on October 1, 2025, has led to the furlough of approximately 900,000 federal employees, with another 2 million working without immediate pay. Essential services like Medicare, Medicaid, and the Transportation Security Administration continue to operate, but many agencies, including the National Institutes of Health and the Centers for Disease Control and Prevention, have faced partial or full suspensions of operations. This disruption has significantly impacted the collection and release of key economic data by the Department of Labor, including the monthly jobs report.

The Congressional Budget Office (CBO) has warned that the shutdown could cost the economy between $7 billion and $14 billion, depending on its duration. The potential economic impact includes up to a 2% reduction in GDP for the fourth quarter due to halted government spending on employee wages, procurement, and food assistance programs. While most of the GDP loss could eventually be recovered, CBO Director Phillip Swagel anticipates that a significant portion—between $7 billion and $14 billion—may be permanently lost.

In light of these developments, the Federal Reserve is expected to lower the benchmark interest rate by a quarter percentage point to help prevent a potential spike in unemployment. The absence of official economic data complicates the Fed's ability to accurately assess the nation's financial health and make informed monetary policy decisions.

The prolonged government shutdown has significant social and economic implications. The shutdown has also resulted in the furlough of approximately 750,000 federal workers, leading to financial strain for many households and potential dampening of consumer spending.

Government shutdowns have occurred periodically in U.S. history, often resulting from political impasses over budgetary issues. The current shutdown is notable for its length and the scale of its impact on federal employees and services. Unlike previous shutdowns, the Trump administration has indicated potential permanent layoffs of federal employees, a departure from the typical practice of furloughs.

The ongoing government shutdown has disrupted the release of official economic data, prompting institutions like the Chicago Federal Reserve to develop alternative methods for assessing the labor market. While their estimates suggest stability in the unemployment rate, the broader economic and social impacts of the shutdown continue to unfold, warranting close attention from policymakers and the public.