How A Government Shutdown May Affect The Economy – Fiscal Policy

The partial shutdown of the federal government came to a temporary end on January 25th, 35 days after it had begun on December 22, 2018. The administration agreed to reopen federal offices and agencies for three weeks, while negotiations continue with House and Senate leaders in Washington. The restoration of normal operations are scheduled until February 15th, when the deadline for an agreement on federal expenditures is decided on.

Affects of the partial shutdown were assessed by the Congressional Budget Office (CBO) in a report released late January. A primary casualty of the partial shutdown includes a drop in GDP. The CBO cites various factors in determining the drop in GDP. Among them are dampened economic activity mainly due to 800,000 federal employees left out of the consumer spending process for 35 days.

Some businesses within regulated industries were not able to obtain federal permits and certifications needed in order to conduct a normal course of business. Some of these effects may be very temporary or non-consequential while others may not be recognized in economic data for months. Vital economic data by various agencies and federal departments which were not released in January during the government shutdown, may produce some disparities in economic forecasts.

Industries affected by the shutdown include mortgage lending, where Fannie Mae gets involved in the approval process, and large construction projects, where federal permits need to be issued and are required. Other industries affected include pharmaceutical, energy and aviation.

The Labor Department reported that it had found “no discernible impacts” to the job market due to the shutdown in January, with the majority of temporary job losses attributable to the 800,000 furloughed government employees.

Sources: Labor Department, CBO

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