This week the normal empty period for new data after the monthly jobs report is of course compounded by the government shutdown. There is no noteworthy new private data coming out until Thursday, so don’t be surprised if I play hooky tomorrow.

But today let me follow up on some macro analysis. 

A few months ago I pointed out that, going back 60 years, every US recession has been associated with a shock to the system. In other words, the normal progression of interest rates, building, sales, income, and jobs have caused waxing and waning in sectors of the economy, but haven’t by themselves been enough to cause it to contract. For that, you needed an economy that was vulnerable, and a shock administered to that vulnerable economy.

Sometimes it has been an oil shock (1974, 1979, 1991, and partly 2007). Sometimes it has been an interest rate shock (1969, 1974, 1979, 1981). Sometimes it has been a financial shock (2001, 2008). And of course in 2020, it was the Giant Flaming Meteor of Death a/k/a COVID. I don’t mean to suggest that these recessions have been monocausal, just that a shock to the system has always been a part of the equation.

Going into 2025, the US economy was certainly vulnerable. High interest rates had taken a toll on the housing market. Employment, especially in manufacturing, was waning. The post-COVID spike in vehicle prices, repairs, and insurance, was still making its way through the system.

But this year, at least 4 shocks have been administered to the system, some (likely) transitory, but some more chronic:

1. Tariffs

2. Medical cost increases.

3. The suspension of food stamp benefits.

4. AI-related layoffs.

Let’s briefly discuss each of these in turn.

1. Since “Liberation Day” at the beginning of April, almost $200 Billion in tariffs have been imposed, an increase of over $100 Billion since 2024. In Q3, this was roughly 3x the amount collected before this year, and 6x the amount collected just before the 1st T—-p Administration:

The evidence so far is that in the aggregate companies are bearing about half of the increased burden, and are passing on about half of the burden to customers. In October alone, $60 Billion in tariffs were collected. If customers paid half of that by way of price increases, that amounts to $50 for every man, woman, and child in the US. That may not be a significant burden for affluent households, but for lower income households it is going to have a real impact.

2. Medical cost increases. As part of the Big Bad Billionaire Bust-out Bill, Obamacare subsidies were ended. Since about 90% of all Obamacare enrollees make use of these subsidies, that means that 22 million people are directly affected:

These households are either going to have to pay (in some cases astronomical) increases for the cost of coverage, or drop medical coverage completely. If they pay, that is another shock to the household budget; if they don’t, it affects the coverage, and the profits of insurers and health care providers. The proposed ending of the government shutdown will make this effective immediately.

3. The suspension of food stamp benefits. As has been widely reported this month, about 44 million people in the US make use of food stamps:
 

To the extent meager household income has to be diverted to buy that food, needless to say it is not available for any other kind of consumption (including payment or rent or utilities). While the ending of the government shutdown should mean the resumption in payments, keep in mind that the proposed continuing resolution only lasts through January. In other words, in 75 days we are right back here, and the successful use of SNAP benefits as a fiscal weapon this time means it will surely be implemented again then.

4. Finally, as I noted on Friday, layoffs as counted by Challenger Gray were at their second highest monthly level since the COVID lockdowns, and the highest October level in a quarter of a century. Many of these were concentrated in tech companies, as live human beings were replaced (or, “replaced”) by AI algorithms:

While this hasn’t shown up in any appreciable increase in new jobless claims, as I noted yesterday the number of continuing claims is close to its highest level in over three years. If this continues, it seems very likely we’ll see it show up in an increase in initial claims as well.

So there you have it: four somewhat independent shocks to the US economic system that individually or collectively might be enough to push it over the edge into a recession. In that regard, let me re-post this graph of the likely combined impacts of tariffs and the Big Bad Billionaire Bust-out Bill on household incomes by percentile:

This only includes the first two of the 4 shocks described above.

Needless to say, the shutdown of official government economic data could hardly have come at a worse time. While we have reasonable proxies for the employment situation, alternative data for income, sales, and spending is spotty. In particular, how has spending on durable goods by companies and consumers held up during this period? Have they cut back, or have stock market gains and the wealth effect so generated more than overbalanced the above described shocks. We simply don’t know. Assuming government data releases resume shortly, I will be particularly focused on that information.

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