US Government Shutdown Avoided

Investing.com — The US recently avoided a government shutdown, an event occurring when Congress fails to pass a funding bill, causing federal agencies to halt non-essential activities.

According to Wells Fargo (NYSE:WFC) analysts: “A government shutdown only impacts the 25% or so of federal spending that is characterized as ‘discretionary.’”

Programs like Social Security, Medicare, and Medicaid, classified as “mandatory” spending, remain unaffected.

During a shutdown, federal agencies stop non-essential functions, while essential services, including public safety and national security, continue operating.

Wells Fargo explains that civilian federal employees, numbering 2.3 million, and active-duty military personnel, at 1.3 million, face disruptions. “Essential” employees work without pay, while “non-essential” employees are furloughed. However, all workers receive back pay once the shutdown concludes.

Historically, the economic impacts of shutdowns have been modest but noticeable. The bank noted that the “direct hit to economic growth in the 2013 and 2018–2019 government shutdowns was a relatively modest few tenths-of-a-percentage point.” Although GDP growth rebounded post-shutdown, some economic activity did not fully recover.

Wells Fargo added that indirect effects, such as reduced consumer confidence and delayed investments, are harder to quantify but still exist.

Moreover, shutdowns postpone crucial economic data releases like employment and inflation reports. Following the 16-day 2013 shutdown, the Department of Labor’s monthly Employment Situation and Consumer Price Index reports faced delays of about two weeks, affecting economic planning.

Wells Fargo warned that prolonged shutdowns increase uncertainty in economic forecasts, with wider implications for policy decisions. “Economic disruption from a prolonged government shutdown and an extended delay of key government data releases would inject additional uncertainty into the policy outlook and, by extension, the economic outlook,” the bank stated.