A government shutdown of even one week would delay the release of important U.S. economic data, leaving policymakers flying partially blind.Eric Lee / Bloomberg via Getty Images file
As the clock ticks toward 12:01 a.m. on Sunday, a dark cloud of uncertainty looms over the corridors of power in Washington, D.C. Government funding, the lifeblood of federal functions, stands on the precipice of depletion, and the consequences are ominous.
In this high-stakes political drama, the immediate casualties will be the hundreds of thousands of dedicated government employees and contractors, their livelihoods hanging in the balance. The specter of furloughs and interrupted paychecks casts a chilling shadow across the nation.
The financial toll of a government shutdown is a question shrouded in vagueness, contingent upon the unpredictable variable of its duration. To glimpse the potential costs, one must peer into the recent annals of history, where the winter of 2018-19 witnessed a shutdown of unprecedented endurance, spanning a daunting 34 days. During this prolonged hiatus, at least $18 billion in spending was delayed, only to be resumed once the government’s wheels were set in motion again. The price tag of this governmental hibernation was a staggering $11 billion at the time, with the Congressional Budget Office soberly estimating a permanent loss of $3 billion.
The toll on the nation’s economic juggernaut was palpable. U.S. economic growth, as quantified by the real gross domestic product, bore the weight of an $8 billion hit, representing a disheartening loss of 0.2%, a fact confirmed by the discerning analysts at the CBO. As the pendulum swings once more towards uncertainty, the Bipartisan Policy Center think tank forecasts a weekly cost that could ascend to an eye-watering $1 billion should the government once again cease its operations.
In the unpredictable realm of financial markets, investors often recoil from uncertainty, fearing volatility and upheaval. However, the historical narrative of government shutdowns tells a different tale. Markets, it seems, have an innate resilience, as expectations of an eventual government reopening have consistently dissuaded investors from reacting impulsively to the capricious rhythms of Washington’s political heart.
Brian Gardner, a vigilant sentinel of federal policymaking within the financial services domain at Stifel, has astutely observed the past market behavior during shutdowns. The S&P 500, during the 2018-2019 shutdown, ascended by a remarkable 10%. Similarly, in the preceding 2013 shutdown, the market charted a steady course, rising by approximately 3%. In the grand orchestra of financial markets, it becomes evident that other factors exert a more pronounced influence on their movements.
Federal Reserve Chairman Jerome Powell, a bastion of wisdom amidst economic tumult, remarked on September 20 that government shutdowns “haven’t traditionally had much of a macroeconomic effect.” However, the Federal Reserve, the nation’s guardian of monetary policy, is an institution guided by the rigors of data. It heavily relies on government reports to navigate the labyrinthine paths of interest rates. In this intricate dance of fiscal policy, a potential risk looms large.
The duration of a government shutdown directly impacts the release of critical economic data, from inflation figures to unemployment rates. As the sands of time slip away, vital metrics remain unprocessed and ensnared in bureaucratic limbo. The next national jobs report, scheduled for release by the Bureau of Labor Statistics on October 6, hangs in the balance. Without access to these crucial metrics, the Federal Reserve finds itself sailing into uncertain waters, partially blindfolded, as it navigates the treacherous terrain of its next interest rate decision in November.
In this unfolding saga, the lives of countless federal workers dangle precariously. The prospect of a government shutdown precipitates a storm, and the impact on these individuals depends on the shutdown’s scope—partial or total. As the present course veers toward a comprehensive shutdown, we delve into the potential consequences.
In a partial shutdown, select agencies and departments that have secured full-year funding from alternative sources manage to keep their engines running. This fortunate circumstance allows more federal employees to continue their work and receive their hard-earned compensation. Conversely, in a complete shutdown, a broader swath of the nation’s vast workforce, comprising over 2.2 million government employees, including stalwart military personnel, faces the grim specter of missed paychecks.
Recalling the partial shutdown of 2018-19 offers a glimpse into the divergent fates of government workers. Notably, nonessential activities at the Department of Defense and the Department of Energy soldiered on, unaffected by the shutdown’s icy grip due to prior funding arrangements. In stark contrast, the extended 16-day shutdown in 2013 cast a wider net, ensnaring all departments and agencies funded through annual appropriations.
In the more recent of these two sagas, an estimated 300,000 government workers, representing 38% of those at unfunded agencies, experienced the harsh reality of furloughs—a stark contrast to the 850,000 workers similarly affected in 2013. As the hourglass empties, the fate of these dedicated public servants, their livelihoods tethered to the whims of political machinations, hangs in the balance, emblematic of the perennial drama of fiscal brinksmanship.
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