With the U.S. government facing down another risk of shutdown, experts are calculating the potential impact on the economy. In the past, when the federal government has shut down, the economic damage has often been very limited. This time, many analysts say the fallout would be even worse. The impact of the longest shutdown on record, 35 days long from late 2018 to Jan. 2019, could be dwarfed by what’s coming. This is alarming considering how current trucking dysfunction threatens to break our $30 trillion economy.
Economists remind us that previous government shutdowns made next to no dent in markets and the economy. They’re hopeful this shutdown could change that trend. Nomura economist David Seif indicated that former President Donald Trump’s recent threats to make certain federal furloughs permanent could exacerbate the situation. This change can make a big difference in that monthly nonfarm payrolls report. So we won’t notice any of this until the October employment figures are released in early November.
From a practical standpoint, previous government shutdowns should serve as a warning about how report releases will be affected. On the 2013 shutdown, both BLS and White House officials pushed back the September jobs report until October 22. Or at least, that’s what they did when they delayed the Consumer Price Index for September by two weeks. This brief historical context points to the substantial risk for distortions to key economic indicators that measure our rate of economic growth and level of employment.
Michael McLean, a senior public policy analyst at Barclays, recently tweeted something that caught my attention. He thinks that this time a shutdown would not follow the old script. Elizabeth Renter, a senior economist at NerdWallet, agrees. Second, she makes clear what furloughs do the second they happen—to federal employees and contractors.
“The most immediate and impactful effect is on furloughed federal employees and contractors,” – Elizabeth Renter
As Renter went on to explain, even temporary disruptions in earnings can lead to devastating impacts for families.
“When households are forced to go without income, even for a week, it can set back their financial stability significantly.” – Elizabeth Renter
Many economists continue to express a guarded optimism about the shutdown’s broader effects. Mark Cabana, head of rates strategy at Bank of America, unpacked the prospect of a government shutdown. With no worries about the economy, he boldly proclaimed, “We anticipate very limited economic disruption.” Bank of America’s statement is that short-term losses typically recover in subsequent quarters. They project that a long shutdown could reduce gross domestic product by about 0.1 percentage point for every week it continues.
The Washington D.C. region has recently faced layoffs that have already strained local employment figures, potentially exacerbating the effects of a shutdown. Given these historical patterns, we would expect the short-term impact to stay fairly benign. Continued professional losses can hinder recovery efforts in states and locales that rely on federal jobs.
Elizabeth Renter’s point about the importance of stable, affordable housing underscores a focus on yet another aspect of the problem. A GOP government shutdown would be a pointed financial blow to everyday households. Although this impact will not be immediately reflected in larger economic indicators, it can create long term repercussions for individual families.