Markets may be underestimating the economic fallout from U.S. government shutdown, El-Erian warns
Economists and market watchers who have dismissed the ongoing U.S. government shutdown as inconsequential may soon have to rethink that view, according to Mohamed El-Erian, a Wharton professor and chief economic adviser at Allianz.
So far, Wall Street has largely brushed off the disruption. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average have all notched record highs during the shutdown - a pattern consistent with past episodes.
Market strategist Charlie Bilello noted that “the S&P 500 has posted a positive return during the last six government shutdowns,” underscoring how investors have historically “looked through” short-term political turmoil.
The S&P 500 has posted a positive return during the last 6 government shutdowns. The streak may continue this year with the S&P up 0.4% in yesterday's session, hitting another all-time high. $SPXhttps://t.co/l5IYmkf6Ih pic.twitter.com/piFVf6gUTA
undefined Charlie Bilello (@charliebilello) October 2, 2025
However, El-Erian cautioned that this time may be different. The real test, he said, will come if the shutdown leads to significant federal job losses - a scenario that could ripple through an already uneven economy.
In recent commentary, El-Erian pointed to a growing number of analysts questioning what he called a “previously held consensus” that shutdowns have little lasting effect.
“If this shutdown accelerates the firing of federal employees — and it is an if — it will have adverse distributional impacts, especially in what is already a K-shaped economy,” he said, referring to widening inequalities between different sectors and income groups. “It could also have broader effects for the economy.”
While markets remain unfazed for now, El-Erian’s warning suggests that investors may be underestimating the potential damage if the impasse drags on and begins to affect household income and spending.
Amid data blackout, bleak signs emerge for U.S. job market
With the U.S. government shutdown triggering a blackout of key economic reports, including the all-important nonfarm payrolls data, private-sector indicators are beginning to paint a darker picture of the labor market.
A closely watched report from ADP showed that the private sector shed 32,000 jobs in September, raising concerns that hiring momentum is stalling.
ADP’s chief economist, Nela Richardson, said the numbers suggest employers are growing more cautious in hiring.
Meanwhile, separate data from the Job Openings and Labor Turnover Survey (JOLTS) indicates that the weakness extends beyond federal employment. Construction job openings fell by half in August, marking the second-largest monthly decline on record.
Analysts say the sector is feeling the effects not only of tighter financial conditions but also of reduced immigration, which has limited the available workforce.
Some economists have linked the hiring slowdown to immigration restrictions under the Trump administration. Together, the figures suggest a labor market losing steam just as official data sources go dark.