Government Shutdown Leads to Economic Uncertainty
President Trump has ended the longest government shutdown in U.S. history (28 days) with a bill to reopen the government for three weeks. Over 800,000 federal employees are not receiving pay, and nearly half will not be compensated for their time. Every day that government spending and federal employment is delayed, damage ensues in the economy. Businesses are warning investors that the length of the shutdown is proving to be so detrimental that it may never be fixed. Erin Browne, a managing director and portfolio manager at investment management firm PIMCO, referred to the state of the economy as an “uncertain environment.” As the level of uncertainty increases, businesses halt their spending, leading to slow economic growth, unemployment, and in the worst case, recession. (Recession describes a shrinking economy.) Generally, as companies spend money and produce products, the economy should grow about 2 to 3 percent the historical rate. Two-thirds of the economy is attributable to consumer spending, but if producers and consumers are not participating in commerce, the economy will shrink.
The Global Economic Policy Uncertainty Index illustrates the reality of the economy, which reached the record high in December 2018. Since 1997, the Uncertainty Index measures the amount of times the newspapers in twenty countries publish articles related to economic policy or uncertainty. In Europe, UK parliament rejected Prime Minister Theresa May’s proposal for Brexit for fear that the government of Britain would collapse. China and the U.S. are engaged in a trade war, and China’s tariff conflict has contracted China’s manufacturing industries. The world economy is in a fragile place, and the government shutdown could push it to an edge.
+News Flash: Government shutdowns affect real people. Brenner Stiles is an army veteran and mother of three. She told CNN that she was in “survival mode,” making meals last two or even three days; she said “it feels like federal employees are utilized as pawns in American politics.”