October 15, 2013
Over the past two weeks, many press articles have discussed the effects of the federal shutdown on states. Topics that have been addressed include the Women Infants and Children (WIC) program, Supplemental Nutrition Assistance Program (SNAP), the closing of national parks, the furloughing of state’s federally funded employees and the implications for state tax revenues. However, less attention has been given to the consequences from the widening economic effects caused by the shutdown and the federal debt ceiling impasse. The Department of Labor reported that last week’s jobless claims rose by 66,000, indicating that the shutdown is beginning to reverberate in the private sector job market. Much of the rise in jobless claims was due to a computer system change, but it is estimated that 25 percent of the change was due to layoffs directly tied to the shutdown. With respect to last week’s jobs numbers, Jason Furman, Chief Economist with the White House Council of Economic Advisors, “It's one week's number, the numbers are noisy, but it's yet another signal about how employers are reacting to the fiscal deadlock in Washington.” The scheduled release of other economic data, such as the producer and consumer price indices from the Bureau of Labor Statistics, are not being delivered during the shutdown. Additional evidence that adverse reactions to the shutdown are increasing came last week with Gallup’s Economic Confidence Index, which exhibited the largest weekly drop in American’s confidence in the economy since the collapse of Lehman Brothers in 2008. And the National Retail Federation sent a letter to Senate leaders expressing concern that the shutdown could cause holiday shopping to decline. According to the letter, purchases in the holiday season, account for 20 percent of the retail industry’s annual sales, and as much as 40 percent for some individual companies. World financial leaders have also expressed concerns over the shutdown and debt debate. Officials with the International Monetary Fund recently commented on the importance of nations with large economies for global growth and stated “Private investment hinges on confidence. If we don't get clear resolution on the U.S. fiscal and the debt issue, it is going to be hard to see how that confidence is going to come back anywhere.” State budget officials are likely to experience greater uncertainty as long as business owners, consumers, and labor market participants continue to react to the federal fiscal impasse by or delaying private sector activities that are essential for the overall health of the economy. With the current economic recovery still weak by historical standards, this increased uncertainty stemming from federal policy makers continues to be a negative factor moving forward. Current media coverage suggests that a Congressional deal to reopen the government and raise the debt ceiling is likely sometime this week. However, some of the broader economic impacts may persist under a short-term spending agreement that doesn’t contain assurance that these fiscal issues won’t reoccur with the next approaching deadline.