A government shutdown is nowhere near as scary as it sounds
A shutdown would disrupt the federal parks and museums, the funding of Planned Parenthood, and the pay for federal employees.
But what about the big picture?
"Are shutdowns bad for the economy? The short answer is: not as bad as you may think," said Aneta Markowska at Societe Generale.
"During these episodes, the impact on economic activity was either negligible or very short-lived," she wrote in a note to clients Monday. "Treasury yields declined noticeably during both shutdowns; however the declines were reversed within weeks of government reopening."
Despite the shutdown, economic indicators from the month of the shutdown came out fine:
Markowska also notes that the release of economic reports for September would be delayed due to a government shutdown?. The jobs report for September is scheduled to be released the day after the government might shut down, October 1. The last shutdown, which lasted from October 1-16, 2013, delayed the September jobs report 18 days, from October 4 to October 22.
None of this is to say that people's lives won't be impacted.
"If a shutdown occurs next week and were handled the same way as prior shutdowns, about 40% of federal workers would be sent home-the rest would be exempted because of their job responsibilities-representing about $2bn in lost compensation for each week that funding lapsed and lowering real GDP growth in Q4 by just under 0.2pp for each week of shutdown,"Alec Phillips of Goldman Sachs said. "That effect would roughly reverse in Q1 (assuming the shutdown had ended) as federal output returns to a normal level."
A report from the White House Office of Management and Budget in November 2013 estimated that the Q4 GDP for that year would be dragged down by 0.2-0.6%. In the end, it came out alright.
"Arguably, Q4 GDP should have been hit by the uncertainty which spanned half of that quarter," said Markowska. "Yet, it expanded by 2.9% following a 3.5% growth rate in Q3 and a YTD average of 2.1%."
Both Markowska and Phillips say a debt ceiling fight would be more worrisome for the economy and, obviously, the US Treasury.
On the stock market side, there's seems to be little reason to worry either.
"We find no real evidence that a closed government should negatively affect stocks," said JC O'Hara of FBN Securities in a note Tuesday. "If the US Government does shut down (~30% probability at this time) the market rallies convincingly when re-opened."
In the event of a government shutdown, it seems for the most part the economy, from jobs to stocks, will probably keep on rolling.
