Long shutdown may worsen volatile markets

WASHINGTON: A short government shutdown would likely have little impact on the overall US economy, but a protracted budget fight during a time of heightened stock market volatility could worsen an already murky outlook, economists say.

The partial US government closure entered its sixth day on Thursday as President Trump and Congress remained at an impasse over his demand for more funding for a border wall, leaving 800,000 federal workers furloughed or working without pay.

The initial economic effects are likely negligible, despite the hardships for individual employees, because the shutdown initially fell on two weekend days and two federal holidays and affected about a quarter of government offices.

Moreover, much of the suspended federal spending would likely be shifted into the new year, if recent precedent holds. Congress in the past has voted to give furloughed workers back pay once funding is restored, though this isn’t guaranteed. Essential workers who remain on the job will eventually get paid, but not until the shutdown ends.

The danger, analysts said, lies in the prospect of a prolonged stalemate, coming at a time when investors and businesses are already jittery over multiple factors, including US-China trade tensions, rising US interest rates, the decline in stock prices and slowing global economic growth.

“What would be worrisome is if businesses start to lose confidence” in the government, said Kathy Bostjancic, head US financial market economist at Oxford Economics. “They’ll pull back on hiring and investment, and it’ll become a self-fulfilling prophecy, where negativity in the stock market turns to negativity in the (broader) economy.”

Fresh data released on Thursday show the job market is likely to remain on a solid footing in the near future. Jobless claims, a leading indicator of the economy’s future trajectory, ticked down last week.