Intelligence

10 Financial Impacts of the Government Shutdown

Vested

Jacqueline Gogel

Vice President

Today is day 33 of the federal government shut down–the longest shuttering since Bill Clinton’s presidency in’95-’96, which lasted 21 days. For some Americans, especially the 800,000 who will miss their second paycheck on Friday, the impact of the shutdown has been felt deeply and immediately. Yet for those who don’t work for the federal government or live in districts heavily populated by federal workers, direct effects of the shutdown have been felt lightly, if at all.

Even if your pockets aren’t hurting currently, the shutdown still has real and long-lasting financial impacts on Americans across the country. Here, we break down its effects and what the shutdown means for personal and public finances.

Almost One Million Americans Without Pay

Since the shutdown began in late December, an estimated 800,000 federal employees have gone without pay. Of those 800,000 an estimated 380,000 are furloughed, meaning they’re out of work and pay. And the other 420,000, deemed essential to the function and security of the nation, have been forced to work without pay. Collectively, they’re due to be owed more than $6 billion in back-pay by the end of this week.

The effects of lost work and wages extend far beyond the kitchen tables of these employees. Consumer spending, which accounts for more than two-thirds of the U.S. economy, took a serious hit this month. The University of Michigan kept a close eye on the overall sentiment, noting a 7.7 percent drop, reaching its lowest point during Trump’s presidency.

Retail Spending in Jeopardy

In a perfect, albeit sad, segway to the next effect: not only has the consumer spending index dropped, but retailers are also starting to see the shutdown’s effects in their sales. Michael Niemira, chief economist at the consulting firm Retail Economist, said sales in these chain stores fell 1.3 percent last week–the second week of decline. Niemira said the cold may have also played a role, but the shutdown was likely to have contributed to the drop.

Brett Rose–CEO of the United National Consumer Suppliers, a wholesale distributor to retail giants like Macy’s, Bed Bath & Beyond, Homegoods, and others–echoed Niemira’s concerns.

“If the government reopens by early February, the reverberating effect of the shutdown could force large retailers to adjust their 2019 numbers just to balance out profits made last year.”

Consumer Reports Delayed

The Department of Commerce is without funding during the shutdown, delaying key reports on consumer spending and habits. Without these reports, it is difficult for analysts to determine the precise effects of the shutdown on consumer spending, as well as to determine the overall GDP cost of the shutdown.

TSA and Airport Delays

TSA employees are among the hardest hit by the government shutdown. Nearly all have been forced to work without pay, a tough proposition at an agency where airport screeners make only $35K in salary on average. TSA agents have been calling in sick at exceptionally high rates, more than double the rate at the same time last year. Commentators are unsure if these sick call-ins represent a coordinated protest against the shutdown, or if the agents are merely looking for temporary work to sustain themselves while they wait on their usual paychecks. Of course, everyone’s first and immediate concern is safety. But a lacking TSA has also resulted in serious economic hardship for airlines and their shareholders.

Delta announced it would lose $25 million in revenue in January alone due to government employees and contractors not traveling. Its stock dropped 2.1 percent to 47.10 nearing its year-low of 45.08  United Airlines’s stock dropped 2.63 percent, while Southwest’s fell 2 percent ad American’s fell 3.62 percent–dangerously close to its 52-week low of 28.81.

Refunds in Doubt

As we enter the beginning of the 2019 tax season, almost 90 percent of the Internal Revenue Service’s (IRS) employees have been furloughed. This includes workers responsible for determining and processing tax refunds, as well as those who would field queries from tax filers, hugely important as a new tax code comes into effect.

Where we’re likely to feel the effects of this most, though, is in our tax returns. The White House announced it has the staff to collect documents and process tax refunds, stating “the IRS will ‘provide refunds to taxpayers as scheduled,’” in an agency press release. However, there is no precedent for this.  During the 2013 government shutdown, 90 percent of IRS workers were furloughed and some $2.2 billion in tax refund payments were delayed.

Last year, the average tax return was $3,100, a sizeable chunk of money for families and individuals alike. Without this extra cash in people’s pockets, we anticipate consumer spending will likely continue to plummet.

Local Transportation Under Threat

The Federal Transit Administration (FTA), which provides financial support for local and municipal transportation systems around the country, has also been shuttered during the shutdown. While local groups have thus far been able to cover the costs of transportation through non-federal funding, they will struggle to maintain service without support from the FTA. If local transportation systems slow or shut down, regardless of your place of employment, working Americans and their companies are sure to feel the effects.

IPO Market Delayed

The Securities and Exchange Committee (SEC) has been largely shuttered since the start of the government shutdown, with only 6% of the Committee’s 4,400 employees excepted from furlough. The staff on hand are primarily maintaining ongoing investigations, and are not processing disclosures for 2019 IPOs. This could have massive economic consequences, with giants such as Uber and Lyft set to delay their IPOs in the wake of the shutdown. And, as we head into a likely bear market, the pressure is on.

Food Assistance Programs Running Out of Funding  

The Department of Agriculture’s funding has been imperiled by the shutdown, putting the Supplemental Nutrition Assistance Program (SNAP), which helps feed nearly 40 million Americans, in danger. The program is set to run out of funding at the start of February according to White House officials, which could prove the most devastating consequence of the shutdown so far. The program funds roughly 10% of the total amount spent by US consumers on food products.

Border Security Debacle

Perhaps the greatest irony of this government shutdown–triggered by the inability of the Democratic leadership and Donald Trump to come to an agreement on border security–is the 54,000 Customs and Border Protection agents forced to work without pay.

A Zero-Growth Q1

White House officials have warned that, if the shutdown persists, we could be facing the prospect of a full quarter without growth. The White House recently increased its assessment of the shutdown’s economic impact, estimating that GDP loss could be as great as 0.1%–or $1.2 billion–per week that the government remains shut down. Other analysts have varied in their estimates. Some think that the White House numbers are too drastic, and predict a more modest loss of 0.05% per week of the shutdown. However, others, including Ian Shepherdson of Pantheon Macroeconomics, have more dire predictions, with some forecasting GDP contraction through the first quarter if the shutdown persists.

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