Shutdown Showdown


Americans seemed to be more interested in television’s Breaking Bad finale than Washington proceedings last weekend, but we turned the calendar to October only to welcome the first government shutdown since 1996. With negotiations tied to blockage of new insurance exchanges, it is difficult to see how Republicans and Democrats will ultimately come to agreement and open up America for business as usual.

Here are our economic and investment thoughts on the shutdown:

  • Where only chaos sparks results: You have to wonder if Congress was looking for a very bad reaction to the shutdown in order to spark an incentive to start negotiating with each other. Crisis policy seems to have had the most reliable results when it comes to any semblance of political leadership in the past five years. Our leaders didn’t get such a crisis as US stock markets opened higher on the first day of shutdown (Tuesday, October 1st).
  • Unpopular politics: Voter frustration can be measured in poll results which show that the health care law is unpopular but the government shutdown is even less desirable. Bloomberg reported Tuesday that 72% of American’s opposed a shutdown tied to ObamaCare in a Quinnipiac University poll.
  • The hit to GDP: Growth numbers in the US have already been stymied by fiscal austerity in the form of higher taxes and less spending this year. The biggest impact to those who don’t cash a paycheck from the government or have a trip to a national park planned may be a hit to the US GDP. The 800,000 employees who were sent home represent a workforce larger than Target, Exxon Mobil, General Motors, and Google combined (Tom Keane, Bloomberg Radio, 10/2/13). We should note that the hit might have been higher in past shutdowns as US employment in government jobs has been falling. I tried to pull the exact numbers by accessing the US Census Bureau, but the site was down due to the government shutdown.
  • Silver lining: All the rotten tomatoes being thrown at Congress mask the surprising statistic that the US government budget deficit has been falling rapidly in the last twelve months with an even larger decline anticipated. This does not excuse a failure of governance and does not balance the books overall, but it should be noted as we mourn the loss of decorum or certainty in the function of business in Washington DC.
  • Avoid at all costs: The government shutdown seems to be a prelude to another debt ceiling standoff which many market watchers consider to be much more threatening. It seems absurd that US policymakers would manufacture a crisis rather than providing the ability to pay bills. Given the beltway dysfunction, though, never say never. We’ll keep you posted with our upcoming quarterly investment commentary.

All this bad news masks a US economy whose private sector continues to grow and a growing chorus of statistics that seem to support global recovery from recessions, especially in Europe. Our advice for investors right now is not to let the political tail wag your investment dog. Excepting short-term cash-flow needs, focusing on the long-term may benefit reward investors by using dips as buying opportunities rather than selling to duck and cover.

Melissa Joy, CFP®is Partner and Director of Investments at Center for Financial Planning, Inc. In 2011 and 2012, Melissa was honored by Financial Advisor magazine in the inaugural Research All Star List. In addition to her frequent contributions to Money Centered blogs, she writes frequent investment updates at The Center and is regularly quoted in national media publications including The Chicago Tribune, Investment News, and Morningstar Advisor.

Financial Advisor magazine's inaugural Research All Star List is based on job function of the person evaluated, fund selections and evaluation process used, study of rejected fund examples, and evaluation of challenges faced in the job and actions taken to overcome those challenges. Evaluations are independently conducted by Financial Advisor Magazine.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Melissa Joy and not necessarily those of Raymond James.