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The shutdown and the economy – Sober Look

This is a syndicated repost courtesy of Sober Look. To view original, click here. Reposted with permission.

The US federal government impasse is clearly having a material impact on the economy. But the impact is both direct (government employees and businesses that are impacted) and indirect from the impact on the American consumer. Here is part what the direct impact looks like:

Yahoo/Finance: – If there was any confusion about what part of the economy is working and what part is broken, the political antics of the last week have definitively cleared that up.

The shutdown of the federal government represents both a direct setback for the economy and a symbolic arrow pointing to one of the economy’s weakest sectors. Economic forecasting firm IHS Global Insight estimates that every week the government remains shuttered will reduce GDP by $1.6 billion. That’s not a huge hit in the grand scheme of things, but the economy is weak to start with, and it’s not usually considered prudent to trip a limping patient.

The furlough of as many as 800,000 federal employees—punctuated by the government’s failure to publish the monthly jobs report for September on schedule, due to the shutdown–will further weaken a sector that’s already detracting from employment.

The indirect impact however is harder to quantify, but if the situation is not resolved soon, it will overshadow the direct impact. One can see what it’s doing to consumer confidence from some of the high frequency sentiment surveys. The Gallup Economic Confidence Index for example is at the lowest level in over a year. Those who believe that the politicians responsible for this madness are trying to help US households and small businesses should just look at the chart below.

Source: Gallup

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