Government Shutdown Impact Analysis: Consumer Sentiment at Three-Year Low

This analysis is based on the CNBC interview [1] with David Kelly, JPMorgan Asset Management Chief Global Strategist, published on November 7, 2025, which highlighted the severe economic impact of the ongoing government shutdown. The shutdown, now in its 36th day and the longest in U.S. history [4], has driven consumer sentiment to its lowest level since June 2022, creating significant market volatility and economic uncertainty.

The financial markets are showing clear signs of stress from the prolonged government shutdown. Major indices experienced significant declines on November 7, 2025, with the S&P 500 down 0.9%, NASDAQ down 1.35%, and Dow Jones down 0.6% [0]. This market reaction reflects growing investor concerns about the economic ramifications of the shutdown and its potential to disrupt economic growth.

The most alarming development is the collapse in consumer confidence. The University of Michigan consumer sentiment index has plummeted to 50.3, representing a more than three-year low [2][3]. This represents a 6.2% decline from October and a staggering 29.9% decline year-over-year [2]. The shutdown’s psychological impact on consumers appears to be driving this dramatic deterioration, as uncertainty about government services and economic stability weighs heavily on household confidence.

A critical secondary effect of the shutdown is the void in economic data. Federal agencies are unable to release key economic indicators, creating significant uncertainty for both Federal Reserve policymakers and market participants [5]. This data blackout complicates monetary policy decisions and makes it difficult for investors to accurately assess economic conditions.

According to J.P. Morgan analysis, each week of government shutdown subtracts approximately 0.1% from annualized GDP growth through reduced government activity [6]. With the shutdown now extending beyond five weeks, the cumulative impact on economic output could be substantial, potentially derailing the fragile economic recovery.

The data reveals an emerging K-shaped recovery pattern where economic impacts are unevenly distributed. Wealthier consumers with stock holdings actually showed an 11% sentiment increase, highlighting growing economic inequality [2]. This divergence suggests that while some segments of the population may be insulated, the broader consumer base is experiencing significant financial stress.

As the longest shutdown in U.S. history continues [4], the potential for more severe economic disruption increases exponentially. The extended duration amplifies all risk factors, from consumer confidence erosion to business uncertainty, potentially creating long-term scarring effects on the economy.

The lack of economic data due to the shutdown creates a challenging environment for Federal Reserve policymakers [5]. Without reliable economic indicators, the Fed’s ability to make informed monetary policy decisions is compromised, potentially leading to policy missteps that could further destabilize markets.

• Consumer Confidence Erosion:
  The sustained decline in consumer sentiment could trigger reduced spending, potentially pushing the economy toward recession [2][3]
• Economic Data Void:
  The absence of key economic indicators creates market uncertainty and complicates investment decisions [5]
• GDP Growth Drag:
  Each additional week of shutdown continues to subtract from annualized GDP growth [6]
• Credit Rating Concerns:
  The prolonged shutdown may lead to further U.S. credit rating downgrades, following Moody’s downgrade to Aa1 in May [6]

• Defensive Positioning:
  Investors may find opportunities in defensive sectors less sensitive to consumer sentiment swings
• Policy Resolution Trading:
  Potential for significant market movements upon political resolution of the shutdown
• Data Analysis Advantage:
  Market participants with alternative data sources may gain competitive advantages during the government data blackout

The 36-day government shutdown has created a perfect storm of economic challenges, driving consumer sentiment to three-year lows while constraining economic data availability. Market participants should monitor several key indicators: the timeline for political resolution, consumer sentiment trends, and the availability of economic data. The shutdown’s economic impact is quantifiable at approximately 0.1% GDP growth reduction per week [6], suggesting urgency in reaching a resolution. The emerging K-shaped recovery pattern indicates that while some consumers remain resilient, the broader economic base faces significant challenges that could have lasting implications for economic growth and market stability.