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35 Days of Government Shutdown – it’s over (for now)

  • The US Government shutdown is temporarily over: the shutdown lasted 35 days, the longest on record; Congress and President reached a deal that reopened the government until February 15, while the parties try to find a compromise over the spending bill.
  • We will see if a second government shutdown can be averted on February 15, as the short-term continuing resolution expires.
  • While part of the damage (e.g. in production and some consumption) will be likely recovered, lifting Q2 growth profile, some of the losses may be permanent (lost productivity).
  • Uncertainty is corrosive to growth: while direct impact of the government shutdown extension may be limited on time and part of the harm could be potentially recovered, albeit not entirely, the indirect effects on consumer confidence could be longer lasting. Especially as the US economy is already entering a phase of growth moderation into 2019, from 2018 peak.
  • In January, the Conference Board index of consumer confidence declined 6.4 points, much more than expected, to and 18-month low. Notable a large decline in the household expectations sub-index (-10.4 points) compared to an almost stable sub-index of household perceptions of present economic conditions. Also during the 2013 shutdown, as a comparison, consumer confidence fell sharply to a 10 months low (University of Michigan Consumer Sentiment).
  • Business confidence already declined significantly in previous months among small and biggerbusinesses, as represented by the ISM declines and the NFIB small business index deceleration.  
  • Currently, we remain confident in our central scenario of annual growth of 2.4% YoY for 2019. Yet the quarterly growth profile may slightly change, albeit we already embedded in our forecasts some level of weakness in Q1 data.
2019-01-31 govt shutdown-Graph
USARDI Annalisa , CFA, Senior Economist
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35 Days of Government Shutdown – it’s over (for now)
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