Government closures usually have little economic impact. This may be different

For all the political fires they create, government closures have historically been non-characteristic for both the market and the economy.

However, this time it may be different.

That’s because the threat of making several federal furrows due to President Donald Trump’s permanent shutdown could have a long-term impact on employment situations that seem precarious already.

If Trump follows the threat, and almost certainly endures yet another court challenge to his enforcement rights – it throws a wrench at something far more political than an otherwise economic event.

“There is reason to believe that this shutdown may not follow past precedents,” Michael McLean, senior public policy analyst at Barclays, said in a client’s note. As Trump continues, “This is a major departure from past practices and we can inject new uncertainties into the economic impact of the closure, otherwise we would be at a limit.”

Certainly, past closures leave little mark on the part of the political damages caused to the party, which are perceived as negligence.

The market was sold from time to time, but quickly recovered. For growth, most economists calculate their impact as approximately 0.1 percentage points from the weekly GDP. The longest closure lasted for 35 days from 2018 until January, so it’s not that much for the $30 trillion economy. According to Bank of America, short-term losses are usually a simple recovery in subsequent quarters.

However, in this case, the labor market has already wobbled. In particular, the Washington, D.C. area, where most federal employees are called home, was hit by a layoff proposed earlier this year by Elon Musk’s Government Efficiency Advisory Committee.

A shutdown automatically means that employees are not considered essential, but they are always summoned whenever the deadlock is over. “We’re going to cut a lot of people… we can cut a permanent cut,” Trump threatened in an NBC News interview on Sunday.

The impact on monthly non-farm salary reports will not be displayed until the October count is released in November. There, Trump’s threats “can have a more serious, short-term impact than usual,” writes Nomura economist David Seiff.

But it brings about another wrinkle. If the shutdown continues for quite some time, it may delay the release of key economic data.

The Labor Bureau said Friday it would close almost all activities. The Bureau of Labor Statistics, a division that releases multiple key economic reports, including monthly employment, will be shuttered as long as the shutdown continues. In the action plan to address the situation, the department warned of delays and said that data could “degraded quality.”

For Social Security recipients, delays in the release of consumer price index inflation readings can affect cost-of-living adjustments.

This situation could affect the Federal Reserve system that relies on BLS data when making decisions on interest rates and other matters related to monetary policy.

“The US government may be heading towards shutdowns, but we have little hope for economic impact,” said Mark Cabana, director of fee strategy at Bank of America, in a memo. “The shutdown will suspend the release of economic data and, if the closure is extended, the Fed will rely on private data for that policy decision.”

One result is the 2013 closure, when the September employment report was delayed until October 22nd. The CPI for that month was also postponed for two weeks.

Elizabeth Renter, a senior economist at Nerdwallet, agreed to most Wall Street analysis, saying that the ultimate impact should be “relatively mild.” However, she focused on the potential blow to the labor market.

“The most immediate and influential effects fall into federal employees and contractors,” she said. “Even for a week, when households are forced to go without income, it can bring back their financial stability significantly.”