A deal has been reached to re-open the 25% of the U.S. government that has been closed for the past 35 days. The deal is good for three weeks only. If they cannot reach a long-term solution, there is the possibility of another partial shutdown after February 15.
Here are some of the implications:
- The roughly 0.13% of GDP that was lost in each week of the shutdown will no longer be lost. A settlement in the first month of Q1 may provide time to erase much of the drag on Q1 GDP.
- Government workers who were not paid during the shutdown will be retroactively paid.
- Some, but not all, of the income lost to government contractors will be retroactively paid.
- Some, but not all, of the second-round spending lost in the private sector because of the interruption to government payments will be recouped.
- Economic data delayed because of the shutdown will be released, though no schedule is available at this writing for belated data releases.
- The Fed would not have hiked rates on January 30, even if a full set of economic data had been available. That being said, the Fed (and the rest of us) will be in better shape to assess economic performance with a full set of U.S. data.
- Washington policy makers, no longer preoccupied with the shutdown, will shift attention to other matters, including trade, the budget process for 2020, infrastructure spending and of course, “the wall”.
Lessons Learned:
- The Separation of Powers matters.
- Organized labor has been reluctant to use their power. The timing of the deal strongly suggests a work outage by air-traffic controllers helped drive a settlement. This may be an eye-opener.
- Markets were largely unmoved by the shutdown. When word arrived that the shutdown would end, stock, bond and foreign exchange prices were not affected much.
