The government shutdown in the United States is now at 25 days and we aren’t seeing any signs that it’s going to end any time soon. President Trump refuses to sign any bill that doesn’t provide funding for a wall along the southern border and Democrats refuse to go along with any bill that includes funding for such a wall. It appears we are at an impasse.
Regardless of which side of the discussion you fall on, one thing that neither side can be happy about is how the shutdown is and will impact the economy and the market.
The most obvious impact on the market is the fact that hundreds of thousands of government employees are not getting paid while the government is shutdown. An article in USA Today estimated 380,000 employees are not being paid. There wasn’t bill that the President signed that the furloughed workers will be paid their back pay when the shutdown ends, but not all of that money will get spent like it would have if it were a regular paycheck.
Think about it like this, if you are out of work and money is limited, are you going to make impulse purchases? You might not buy that bag of potato chips or that package of Oreos right now. And even if you get your back pay next month, it doesn’t mean you are going to buy two bags of chips since you didn’t buy any this month.
The longer the shutdown goes on, the greater the impact will be on GDP as the demand for many goods will be lower.
The shutdown will also be costly to the government. While some employees are being forced to work without pay because their jobs are considered essential, others aren’t working but will still get back pay. Now you are paying workers for work not performed. The Office of Management and Budget estimated that the complete government shutdown in October 2013 costs the government $2.5 billion in compensation costs. That was a complete shutdown and this is a partial shutdown, but that one only lasted 16 days and this one is already 25 days long and looks like it will stretch considerably further.
The various costs to the government are considerable—lost revenue from national parks being closed, penalty payments to contractors and vendors for late payments, unemployment benefits to the furloughed workers…
One area that I hadn’t considered that will have an impact on the markets is the absence of economic reports. An article from Bloomberg on Tuesday pointed out that the December retail sales report has been delayed. The report was supposed to come out on January 16, but the Commerce Department is closed due to the shutdown.
Investors are already concerned about uncertainty in the market with the trade war and with the big selloff in stocks in December. Now they have to wait for data that could help remove some of the uncertainty.
I was also looking ahead to other reports and which ones might not be released. The Commerce Department also produces the personal income and spending reports and those are due out on January 31. What about the durable goods orders due out on January 25? It is produced by the Census Bureau, but will that report be released on time?
If the shutdown stretches to January 31 and the personal income and spending reports aren’t released, what about the January employment report that is due out on February 1? Will the Bureau of Labor and Statistics be able to put together the report? And what will the report show in terms of the labor market?
One of the clichés about the stock market is that it likes to climb a “wall of worry”, but worry is one thing, uncertainty is another thing. The uncertainty of how badly the trade war is impacting the economy is already there, now we have the uncertainty of the impact of the government shutdown and when it will come to an end. Now we have the uncertainty of not getting key economic reports. That is a lot of uncertainty investors are dealing with.