One of the immediate impacts of the U.S. federal government’s shutdown could be a delay in releasing the employment situation report.
Brian Jones of Societe Generale notes tough times are ahead for data dependent activities.
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US federal government shuts down
Earlier today, the U.S. federal government shut down for the first time in 17 years on Tuesday, after hours of political brinkmanship failed to thwart a congressional budget row. With prospects for a swift resolution remaining unclear, economists warned that the struggling U.S. economic recovery could suffer if the shutdown drags on for more than just a few days.
Delay in release of reports
Jones says one of the major implications of the U.S. federal government’s shutdown would be the shutting down of Bureau of Labor Statistics and the Department of Commerce.
The analyst feels this would have major implications for the prospective conduct of monetary policy.
The Societe Generale analyst doubts whether the employment situation report for September will be released on October 4th as scheduled. Citing an unnamed Obama administration official, Jones points out the BLS will not release the jobs report if the government is closed.
How the situation was handled in 1995
Jones points out there have been 17 federal government shutdowns since 1977, citing Congressional Research Service data. The analyst notes most of the shutdowns have lasted only for a few days, with the longest being the most recent one spanning 21 days.
Drawing a parallel to the 1995 shutdown, the analyst observes that during the 1995 federal shutdown, statisticians at the Bureau of Labor Statistics had already prepared estimates for the upcoming Consumer Price Index report when funding ran out. Sensing that the potentially market-moving information could be leaked, the Office of Management and Budget ensured a small number of workers were available to release the job report.
However, the Societe Generale analyst notes on a positive note, the Department of Labor has announced that the weekly report on initial claims for unemployment insurance benefits will not be hampered.
Two week closure to cut GDP growth by 0.25 to 0.5 percent
Expressing concern over the shutdown, Brian Jones feels the length of the shutdown will determine economic fallout. He fears that federal employees impacted by the shutdown would be paid retroactively when a spending bill is passed.
Quantifying the fallout of the shutdown, the Societe Generale analyst feels a reasonable estimate of a two-week closure would place a haircut on Q4 real GDP growth at between .25 to .5 percentage points annualized.
However, Jones notes the odds of breaching the debt ceiling of $16.7 billion and triggering a technical default look quite slim.