U.S. Government Shutdown Begins Over Immigration Dispute
The U.S. federal government has entered a shutdown, commencing on October 1, due to Congress' inability to agree on funding. This is the first such occurrence since the 2013 shutdown, which lasted 16 days. The current impasse is primarily due to disagreements over immigration policies and border security. While some government services will be impacted, historically, government shutdowns have not significantly affected the stock market today.
The 2013 shutdown was sparked by opposition to the Affordable Care Act (ACA), also known as Obamacare. The Democrats, led by President Barack Obama and the Senate majority, supported the ACA and refused to compromise on its funding. Meanwhile, the Republicans, particularly the Tea Party faction in the House, strongly opposed the ACA and attempted to block its funding through budget resolutions. The standoff lasted for 16 days before the Republicans relented and passed a 'clean' continuing resolution, ending the shutdown.
This time around, an extended shutdown could potentially harm the labor market, especially if it leads to more layoffs at the federal level. The shutdown could also exacerbate the current tenuous labor market and dampen consumer spending, particularly in the Washington, D.C. area. Thousands of federal workers across various agencies have been furloughed, with President Trump warning of potential permanent layoffs. However, the S&P 500 has historically shown resilience during government shutdowns, averaging a gain of 0.05% during the 20 shutdowns since 1976. On the first day of the current shutdown, the S&P 500 finished up 0.3%, indicating that investors are not overly concerned.
More than half a million employees have been furloughed, with the majority from the Defense Department's civilian workforce. As the shutdown continues, its impact on the economy and the labor market will be closely monitored. While the stock market today has historically been unaffected by government shutdowns, the potential for increased layoffs and dampened consumer spending could have broader economic implications.
