If you need something from the Commerce Department or the Department of Labor this week, it’s probably best not to hold your breath. According to analysis from the New York Times, the government shutdown that is now a reality is keeping 87% of the Commerce Department’s staff furloughed at home and 82% of the Labor Department. Most essential federal employees will be at work, but estimates put the number of furloughed government employees around 800,000, with another million or so being asked to work without pay.
The government shutdown will have real impacts on the U.S. economy, though the silver lining (if there is one) is that the negative effects may be only transitory. Much of the impact, though, depends on the length of the shutdown and the coming showdown over the debt ceiling.
Based on current estimates, we’d expect between 0.1% and 0.2% to be shaved off of U.S. GDP for every week that a shutdown continues. Read more
For those involved in trading the fixed income markets, August is usually one of the more mundane months. Issuance of new corporate debt slows down significantly since many global investment professionals are on vacation, forced two-week leaves, or holidays, which results in liquidity that is much more challenging. But unlike past years, we’re entering into a September time frame that is poised to be anything but boring, thus causing a likely increase in volatility. So just like the coming attractions at your local movie theater, this is what we have to look forward to in the month of September:
Specific events and their release date:
- “The Last Picture Show” (September 6) – On this Friday, the final major piece of the employment puzzle, the August non-farm payrolls, will be released to the market. This will either confirm the prevailing wisdom regarding the underlying strength of the U.S. economy and the likelihood of tapering of the Fed’s quantitative easing program, or it will provide a difficult conflicting perspective only days before the FOMC meeting. Read more
The recent all-time highs for several U.S. equity indices are evidence that markets have finally managed to put the dreary politics of the last couple of years in the rear-view mirror and renew focus on the fundamental strengths of U.S. businesses. Hopefully the upcoming debate over the debt ceiling and the federal budget won’t overshadow an economy that’s increasingly building momentum.
The U.S. has several very positive factors fueling its economic recovery. Manufacturing is expanding, driven by relatively low energy costs, improved productivity, and innovation. Some firms, like tech giant Apple have announced that they’ll be expanding their on-shore manufacturing presence – somewhat reversing decades of outsourcing that pushed jobs to low-wage countries. The housing market, a bellwether of previous recoveries, is clearing in many areas of the country. Read more
As the clock ticked past 11:59 and Friday, March 1 turned into Saturday, March 2, the much-discussed sequestration went into effect. Did markets shudder at this lack of a last-minute deal? Not really – in fact, all three major U.S. markets (DJIA, S&P 500, and NASDAQ) closed up on Friday. So, how much of an impact will this roughly US$1 trillion in cuts have on the economy? Not as much as you might think. Read more
The fiscal cliff deal was not a pretty thing, but it moved the conversation forward. It resolved uncertainty on most of the outstanding tax issues, and we think that it likely helped prevent a tax-hike-induced recession in the United States. That’s part of the deal. Now, we look forward to fixing the other part – spending cuts, or as they call it in Washington, sequestration. The deal hammered out by Congress in the first day of 2013 delayed the automatic spending cuts by two months. So the question is, if they pushed it back once, won’t they just push it again and delay until sometime in 2014?
I don’t think so. I think something is going to happen on the spending cut side. With the new sequestration deadline seemingly on top of the deadline for expansion of the federal debt ceiling, Republicans have some amount of leverage. The problem with delaying the sequestration even to February is the uncertainty that it pushes throughout the federal system. Read more
Remember when gold used to be a big deal? America adhered to the Gold Standard, and a musician was excited when their album “went gold,” meaning it sold more than a million units. Then, during the 1970s, Nixon abandoned the Gold Standard and gold-status for albums got downgraded to only 500,000 units and platinum-status was given to the million sellers. It’s been downhill for poor gold ever since. And now platinum’s all the rage again with everyone debating the “platinum coin” option for bypassing the debt-ceiling debate in the United States. Read more