When And How Will the U.S. Government Shutdown End?
The US government shutdown is now entering its fourth week and there are no signs of an imminent solution, though once progress starts, it could gain momentum quickly. It looks likely that pressure to reach a solution will start to build in early November, though the nature of the eventual settlement remains far from clear.
Pressure to end the shutdown has so far been limited, with political focus more on progress towards peace in Gaza and the increasing use of the military in US cities. The public has been less focused on the shutdown, with many on each side having partisan opinions on who is to blame, and many others cynically resigned to government dysfunction. However, opinion polls do show the public more inclined to blame the Republicans than the Democrats. This will strengthen the willingness of the Democrats to stick to their position, which the Democratic base is demanding.
Pressure to reach a settlement is however likely to build with government workers soon set to miss their first full paycheck, though Trump is attempting to get military personnel paid. November 1 will start to see open enrollment for health insurance under the Affordable Care Act, which will see some hit by significant hikes in premiums. Democrats have chosen to make the removal of health spending cuts their central demand as these will hit many Trump voters. The cuts are of more importance to traditional Republicans worried about the budget deficit than the Trump base. It is likely the Republicans will feel some pressure to back down, but a full climb down will be too costly for them to accept, over $1 trillion over 10 years. Republicans will be unwilling to compromise on tax cuts to offset any compromises on health spending, so any settlement will probably add to the budget deficit. Eventually both sides are unlikely to get all that they want, keeping the boost to the budget deficit modest, though the deficit is already unsustainably large.
This suggests pressure for a settlement will build in early November with mid-November being a likely time for one to be reached. There will be strong pressure for a settlement to be reached by Thanksgiving on November 27, as demand for air travel is particularly strong during that holiday. If the shutdown is still in pace by then a lengthy delay in salaries for air traffic controllers is likely to be generating increasing absences, potentially putting safety at risk.
If the shutdown lasts for over a month several data releases will see two monthly postponements. It is unclear at this point whether both delayed releases will be published or if we will simply get a published change over two months. It is likely key releases, such as non-farm payrolls, will see both releases published, but less significant data may see one release covering two months. Should the shutdown extend into mid-November, the hit to Q4 GDP would be significant, perhaps close to 1.0% on an annualized basis, which could see growth falling to near zero.