What's Happening?
The ongoing government shutdown has raised concerns about its potential impact on the U.S. economy. Historically, shutdowns have not significantly affected markets or U.S. Treasury yields, according to Truist
Advisory Services. However, the longer the shutdown persists, the greater the risk of adverse effects. Essential government functions continue, such as Social Security payments and debt servicing by the Treasury Department. Despite these operations, the shutdown could lead to missed SNAP benefits and paychecks for federal workers, with the first missed paycheck expected on October 24. The shutdown threatens to disrupt $800 million worth of federal contracts daily, impacting federal workers and contractors. The Congressional Budget Office previously estimated that a five-week shutdown in 2018 cost the economy $11 billion, with $3 billion permanently lost.
Why It's Important?
The shutdown's impact is significant for federal workers and contractors, who face lost pay and work stoppages. The Government Employee Fair Treatment Act guarantees back pay for federal employees, but contractors lack similar protections. Local economies with large federal employee populations, such as Washington, D.C., Maryland, and Virginia, are likely to feel the pinch due to reduced consumer spending. Tourism in D.C. has slowed, affecting local businesses. The shutdown's broader economic impact could affect consumer confidence and spending, which economists are closely monitoring. The shutdown primarily affects discretionary spending, which is a portion of the federal budget, while mandatory spending programs like Social Security continue to operate.
What's Next?
If the shutdown continues, federal workers may face financial distress, impacting consumer spending and local economies. The shutdown could lead to increased absenteeism among Transportation Security Administration and air traffic controllers, posing safety risks during holiday travel. Lending operations at government agencies may experience delays due to employee furloughs. The shutdown's impact on local economies and federal workers could lead to public outrage, prompting both political parties to seek resolution. The shutdown's duration and its effects on consumer confidence and spending will be critical factors in determining its long-term economic impact.
Beyond the Headlines
The shutdown highlights the vulnerability of federal workers and contractors, who bear the brunt of its impacts. The potential for mass government layoffs raises concerns about job security for federal employees. The shutdown's impact on local economies underscores the interconnectedness of government operations and consumer spending. The shutdown's effects on tourism and local businesses in D.C. highlight the broader economic implications of government funding lapses. The shutdown's impact on lending operations and loan processing delays could affect homebuyers and small businesses relying on government loans.
