In the last two years, Americans have been forced to sit through a host of political spectacles — the most recent being the government shutdown. Unfortunately, this partisan standoff between President Donald Trump and the Democrats can’t be shrugged off as just another ideological divide.
Trump’s stubbornness to forgo the waiting game inflicted real pain onto the thus far growing domestic economy.
About 800,000 federal employees were the primary victims of this standoff. The 420,000 who were deemed “crucial” had paychecks withheld from them despite continuing to work. The remaining were furloughed without pay.
Immediately, this depresses the economy because of the reduction in production. And while most federal workers eventually received compensation, the pay delay is particularly damaging because of the nature of the U.S. economy.
The United States is defined by its consumer culture, and that reflects distinctly in how we allocate our funds. A staggering 70 percent of economic activity in the United States is attributable to consumer spending. Furloughed workers have already cut their spending by 20 percent, lowering gross GDP growth by 0.1 percent.
Consumer spending is directly correlated to their financial stability. Theory suggests that if consumers are receiving payment, they will spend regardless if the item is essential or not because they feel secure.
If this basic expectation cannot be met, consumers will inevitably develop a pessimism about their financial security. They will spend less on nonessential goods and services, such as dining out and entertainment.
Declining consumer confidence is merely one factor in the climate of uncertainty. Market volatility, the trade war and rising Federal Reserve rates have likely worked in conjunction to make the public concerned about an imminent economic recession.
Inability to access key economic data — due to the furloughing of the workers responsible for collecting that data — has likely concerned consumers that the government has something to hide, leading many to call the shutdown “embarrassing.”
In fact, JPMorgan Chase executives Jesse Edgerton and Daniel Silver notified their clients that while this lack of transparency may be an incident, it will bolster uncertainty and frazzle consumers and businesses.
Fortunately, Silver’s predictions did not ring true — markets have remained resilient during this fiasco. Historically, they have seldom gone haywire, likely because of the frequency by which brief government shutdowns occurred. In essence, they became typical occurrences that could be discounted in regard to economic performance — at least to investors.
However, that is not the case this time around as the length of this particular shutdown broke records. Markets likely rebounded due to the Fed adopting a dovish stance, the Chinese government stimulating its economy and softening trade tensions.
We ought to take this achievement with a grain of salt, though. JPMorgan Chase’s CEO Jamie Dimon believes recovery is nebulous, at best. Typically optimistic about the economy, he issued a warning about the possible collateral of the shutdown — zero growth in the first quarter of the new year.
While the most recent labor report has softened the statement, the reopening of the government is temporary and all gains could be erased in February and March.
Although the country has previously escaped numerous shutdowns with minimal damage to the economy, those were relatively short. We ought to keep in mind that the reopening of the government is temporary on Trump’s behest.
If he fails to acquiesce his demands for an impossible wall, we may very well lose essential government services and hinder economic growth, forcing the country to dwindle faster into the probable recession.
