The Government Shutdown and Jobs

Since nonessential but large sections of the U.S. federal government were closed at month’s beginning, there has been little press about the jobs crisis.  Except for rueful notes that the September unemployment numbers would not be on time, the pace of articles considering that our work situation might be more than just the slowest recession recovery ever has gone from a sprint to a slow walk.  The shutdown has, of course, has real effects on jobs, none of them good.  What are the main ones?

First, the closure has taken about a million Americans, immediately if not presumably permanently, out of the workforce.  Even though history and everyone’s published opinions agree that furloughed government employees will eventually be paid as if they had been on duty as usual, they are currently not getting paychecks, not coming to work, not going to lunch at nearby restaurants, not using as much gas, and not generally consuming as much.  It doesn’t take much analysis to realize that restaurants open for lunch in many areas in Washington and some elsewhere have seen their business plummet.  As people make longer-term arrangements and modify their lives accordingly, this collateral damage will both intensify and spread as the impasse remains.  Few affected businesses will hire much until it is over.

Second, it is bad for markets.  The Dow Jones Industrial Average, despite good news such as the calming appointment of Janet Yellen to the Fed chair, dropped 327 points from September 30 to October 9.  Yesterday, only small signs of a partial reconciliation caused the average to regain all but 4 of those.   Falling stock prices, which will surely resume if no agreement is reached, help nobody, and when they do that, even those in the 1% will perceive they can spend less.  Bear markets mean weaker consumer confidence.

Third, the shutdown is terrible for business planning.  What can they expect for next year, or even next month?  Precisely how much will they be damaged by the absence, not only of federal workers being paid, but of federal services?  How would you like to be responsible for predicting the number of next month’s customers at a large hotel near Hot Springs or Carlsbad Caverns?  How about at a Washington convention center?  Whatever they decide to do, it will probably involve fewer workers.

Fourth, government hiring, of course, will be down to almost nothing for a while.  With these jobs, as with many dependent on related business, efficiency will have a chance to creep into later workforce decisions.  Once government departments and other organizations’ managers see how they did with too few people, they may use that knowledge to slow down or even stop adding new employees later on.

We have one large question for the government shutdown, on which we can only speculate.  How long will it continue?  It may well be settled along with the October 17^th deadline for raising the debt ceiling deadline, necessary for Washington to legally pay all of its bills.  Yet that date could pass, with partial or no resolution, as the two Congress sides may have in effect taken the reverse gears out of their tanks.  If they perceive they absolutely cannot back down, even partially, the shutdown could blow past the 21-day record set in the outage of 1996 and go on even into 2014.  Their minds are made up, and they may not be willing to be confused by the facts.  An open civil war of sorts within the Republican Party could break out, if the moderate side takes a stand against the others, but if they do not, there may be no reason for the deadlock to be broken. 

All in all, even this restricted government shutdown is very bad for the economy.  We may think of it as the equivalent of an artificial recession, cutting employment and bringing much prosperity down with it.  As for monitoring it, other data sources will fill some of the gap, but the next set of Bureau of Labor Statistics jobs data may not arrive for a long time.  But we will know, whether the unknown official unemployment rate is 7.3%, 7.8%, 8.8%, or 12.8%, and whether we live in Washington or across the country, that the nation’s finances are getting worse.  And in the meantime, there is still no reason for the jobs crisis to end.