US: The question of the shutdown appears to be “when” rather than “if” at this stage – TDS

Developments in Congress this week will be crucial to determine whether the government enters a shutdown at the end of September. Economists at TD Securities analyze the consequences of a US government shutdown.

A shutdown that lasts for one month could shave 0.2pp or slightly more from GDP growth

If legislation on the House floor does not make ample headway by the end of the week, the most likely scenario will be a temporary shutdown. Even if Congress manages to pass a last minute short-term continuing resolution, shutdown risk will remain on the table in Q4. The question of the shutdown appears to be ‘when’ rather than ‘if’ at this stage. 

Estimates suggest a shutdown that lasts for one month could shave 0.2pp or slightly more from GDP growth, but such long government shutdowns have historically been rare. In other words, shutdowns don't tend to matter until they do. The production of economic statistics can also be delayed or canceled, as has occurred in the past, which could add additional volatility to markets. 

The shutdown is one of the many headwinds the economy faces this fall. These include the potential drag from student loan repayments, higher interest rates and tighter financial conditions, and ongoing cooling in labor market dynamics.