Friday, October 4, 2013

The shutdown and the economy

The US federal government impasse is clearly having a material impact on the economy.  The impact is both direct - from government employees and many companies that do business with the federal government -  and indirect from the hit to the American consumer and consumer spending. Here is part what the direct impact looks like:
Yahoo/Finance: - If there was any confusion about what part of the economy is working and what part is broken, the political antics of the last week have definitively cleared that up.

The shutdown of the federal government represents both a direct setback for the economy and a symbolic arrow pointing to one of the economy’s weakest sectors. Economic forecasting firm IHS Global Insight estimates that every week the government remains shuttered will reduce GDP by $1.6 billion. That's not a huge hit in the grand scheme of things, but the economy is weak to start with, and it’s not usually considered prudent to trip a limping patient.

The furlough of as many as 800,000 federal employees—punctuated by the government’s failure to publish the monthly jobs report for September on schedule, due to the shutdown--will further weaken a sector that’s already detracting from employment.
The indirect impact on the other hand is harder to quantify, but if the situation is not resolved soon, it will overshadow the direct impact. One can already see what the sutdown is doing to consumer confidence from some high frequency sentiment surveys. The Gallup Economic Confidence Index for example is at the lowest level in over a year. 

Those who believe that the politicians responsible for this madness are trying to help US households and small businesses should just look at the chart below.

Source: Gallup



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