US government shutdown: a blow that could worsen market anxiety

ANDl Senate and House of Representatives from USA They planned to present this Thursday Government funding proposals contradictorywhich increases the chances of a fourth partial closure of the federal government in a decade in just three days.

Congress must pass a law that the president Joe Biden must sign before midnight on Saturday to avoid the suspension of employment of hundreds of thousands of federal workers and the paralysis of a wide range of services, from the publication of economic data to nutritional benefits. This would happen for the fourth time in the last decade.

Republicans in the House of Representatives, led by a small faction of hardline conservatives who are in control by a 221-212 margin, have rejected spending levels for fiscal 2024 set in a deal negotiated by the president of the camera, Kevin McCarthy with Biden in May.

A potential shutdown of the United States government would have a economic impact significant chain that would worsen over time. In addition to incurring lack of salary for millions of workers, non-payment by private contractors and an increase in consumer uncertainty; federal contracting companies, such as SpaceX of Elon Muskthey could suffer daily income losses of up to US$1.9 billionsince funding stops as of October 1.

Besides, 1.3 million military personnel on active duty and another two million federal workers would not be paid during the shutdown, even those employees considered essential that they must continue working.

The perfect storm for the market

This economic crisis would occur at a time when anxiety in financial markets is on the verge of boiling high interest ratesthe increase in oil prices and widespread uncertainty have already hit US stocks from their mid-July highs. It should be remembered that the reference index S&P 500 has lost more than 5% so far in September.

This adds to the fact that, according to Bloombergconsumer confidence decreased to its lowest level in four months during Septemberaccording to the Conference Board’s monthly index.

The agency estimated that each week of the Administration closure would reduce the annualized quarterly growth of the Gross Domestic Product (GDP) by 0.2%, something like US$1.9 billion per day. With inflation that does not let up, federal contractors they would be in need of cash and they would turn to those fired.

According to him New York TimesSince 1976, funding from the United States government has been interrupted 21 times. In the worst scenario, the White House contemplates the possibility of a repeat of the longest and most recent closure that began at the end of December 2018 and lasted 34 days, leaving about 800,000 of the federal government’s 2.1 million employees without pay.