No deal has been reached yet to re-open the US federal government. And while the financial impact of the impasse on markets and the economy is minimal so far – things could change if it drags on much further.
As Ian Shepherdson, chief economist at Pantheon Macroeconomics explains: “At this point the shutdown is a political event, which will have little immediate impact on the macro economy.
“Things are different at the micro level; contractors awaiting payment for government work will have to wait longer, for example, and federal employees, including military personnel, won't be paid on time. These micro effects will become visible at the macro level, though, if the shutdown last for more than a few days.”
GDP growth stifled
Shepherdson also points out that The Council of Economic Advisors calculated that the October 2013 shutdown, (which lasted 16 days) depressed private sector employment growth by about 120,000, while the drop in hours worked by government workers alone depressed quarterly GDP growth by 0.3%.
The aggregate hit, probably was in excess of 0.5%. He suggests a similar effect this time around seems a reasonable bet in the event of an extended shutdown
With regards to impact on the stock market, James Knightley, chief international economist at ING references the 1995 debt ceiling crisis and the Republican-controlled house refusing to back Democrat President Clinton’s budget. Despite two shutdowns during this period, the impact on the economy and the market was relatively minor. However, a similar crisis in 2011 led to much greater volatility.