By Felix Vezina-Poirier
The government shutdown is clouding the market outlook – but you can still make informed portfolio moves
Pay close attention to the market’s “tails” – the scenarios outside the base case.
The Federal Reserve collects and cross-checks a broad range of indicators, both formal and informal, to gauge the state of the economy.
The U.S. government shutdown is unlikely to cause major damage to the economy. But it will cause immediate damage to our ability to read the economy.
One of the first casualties of partisan gridlock is economic statistics. With government agencies closed, data releases grind to a halt. That means the scheduled U.S. jobs report won’t be published.
Markets rely on those reports like a pilot relies on instruments. Without them, visibility narrows, and both policy makers and investors must turn to alternative signals. So in the absence of the official September jobs report, let’s walk through the data we do have, examine what it tells us about the labor market, and consider the implications for the Federal Reserve – and for portfolios.
The U.S. economy has quickly lost momentum in 2025. At the start of the year, job creation was running at around 230,000 a month. By August, that figure had slowed to 30,000, with June even showing outright job losses. Meanwhile, the unemployment rate has steadily climbed since 2023, reaching 4.3% in August.
The picture is clear: The economy has cooled significantly. September data show further weakness.
Reading the September signals
The Bureau of Labor Statistics employment report is the gold standard for labor data. But it is not the only source.
Another important source is the Federal Reserve, which collects and cross-checks a broad range of indicators, both formal and informal, to gauge the state of the economy. Five regional Federal Reserve banks – New York, Philadelphia, Richmond, Kansas City and Dallas – conduct monthly surveys of manufacturing and services firms. These surveys are especially useful during a shutdown because they cover the current month. In September, they pointed to slowing employment. The data can be volatile, but the consistency of the signal is clear: The labor market likely did not regain momentum after stalling in August.
Survey comments were telling as well. Business leaders cited tariffs and high interest rates as ongoing headwinds, hardly the language of companies preparing to hire aggressively.
Consumers confirm the picture. Consumer confidence fell in September, as did labor-market perceptions. When more people report that jobs are “hard to get” than “plentiful,” history shows that the unemployment rate usually rises. That spread climbed further in September, suggesting unemployment ticked higher.
We also received the September ADP payroll data. While these data are volatile and often diverge from official payrolls, the headline was telling: ADP reported a 32,000 contraction in private payrolls. That marks the second straight month of decline, underscoring that job growth has decelerated since the start of the year.
Finally, the BLS Job Openings and Labor Turnover Survey gave us a look under the hood of August’s labor report. Openings rose, but by less than the increase in unemployed workers, another sign of loosening. Moreover, the increase was concentrated in noncyclical sectors such as healthcare, which tend to be less sensitive to the business cycle. Complementing this signal, Indeed job postings declined in September, pointing to further weakening in labor demand.
Taken together, the picture is consistent. Companies are slowing hiring, consumers are worried and job openings are not keeping pace with job seekers.
A labor market at the speed limit
Prior to September, the labor market had been weakening without breaking. A useful analogy is to think of the economy as a car. For years, the labor market was speeding above the limit. Over the past few months, it has been easing back, decelerating but still moving forward.
But macroeconomics doesn’t have clear road signs. The “speed limit” – the unemployment rate consistent with full employment – is not directly observable. The Fed estimates it at around 4.0% to 4.3%. And unlike a regular speed limit, crossing it can have nonlinear effects. Imagine a car that runs smoothly at 65 miles per hour, but at 60 begins to sputter. That is what happens when unemployment drifts above the natural rate: Weakness compounds.
At 4.3%, unemployment now sits at the top of the Fed’s estimated range. Why did the Fed allow the economy to reach this threshold? Because inflation risks forced it to slow growth earlier this year. With tariff-related inflation pressures still present, the Fed could not afford to cut prematurely.
Now, however, the labor market sits uncomfortably close to a tipping point.
Investment implications: Watch the tails
Prudent positioning argues for a ‘barbell’ approach.
So where does this leave investors? Risk assets are in an uneasy equilibrium. Investors recognize the slowdown but do not see a recession. They also assume the Fed will be quick to ease if downside risks deepen.
This environment calls for paying close attention to the “tails” – the scenarios outside the base case. Deeply negative employment data would threaten corporate earnings and risk a sharper downturn. On the other side, an inflation reacceleration from tariffs remains an underpriced tactical risk. Neither is our base case, but both could destabilize portfolios if realized.
For now, prudent positioning argues for a “barbell” approach: Keep equities neutral, as there is still upside potential from structural themes such as artificial intelligence despite macroeconomic headwinds; overweight government bonds, which benefit from slower growth and Fed easing; and underweight credit, as spreads offer little cushion, and cash, as policy rates are poised to fall.
If growth deteriorates further, underweight equities. If inflation reaccelerates, underweight both equities and bonds and shift to cash. If the economy slows just enough for policy to preserve the expansion, stay the course.
Felix Vezina-Poirier is the chief strategist for Daily Insights, BCA Research’s global cross-asset strategy service. Follow him on LinkedIn and X.
More: No September jobs report, no problem. Here’s what we know about the labor market – and it’s not great.
Also read: Jobs in service sector shrink for fourth month on tariff uncertainty, lack of qualified workers
-Felix Vezina-Poirier
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10-03-25 1736ET
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