Analysts Examine USA Government Shutdown Effects

If Congress fails to pass a last-minute funding bill, non-essential agencies would close and a wide range of public services would be disrupted, Pepperstone Research Strategist Ahmad Assiri said in a market analysis sent to Rigzone on Tuesday.

“For investors, the concern is not the bureaucracy itself, but the blackout of official economic data and statistical releases that serve as the compass for both policymakers and markets,” Assiri warned in the analysis.

“History offers useful reference points. The U.S. has faced shutdowns before, most notably in 2013, which lasted 16 days over disputes tied to the Affordable Care Act, and the record 35-day shutdown of 2018-2019,” the Pepperstone Research Strategist added.

“While most standoffs end within two weeks, the 2018 episode demonstrated how prolonged deadlock can materially dent growth as the government spending freeze[s], with the Congressional Budget Office estimating GDP losses of roughly 11 billion dollars during that period,” Assiri continued.

“Equities typically weaken heading into and during shutdowns, only to rebound once funding is restored,” the Pepperstone representative went on to state.

In a separate market analysis sent to Rigzone today, Michael Brown, Senior Research Strategist at Pepperstone, said “the biggest ‘problem’ during a potential shutdown would be the lack of official data releases, such as Friday’s U.S. jobs report”.

“That said … I fear that plenty of participants are making a mountain out of a molehill on that front, especially when the data in question will drop as soon as funding resumes, and there are numerous private data series that will still be released,” he added.

Brown highlighted in his analysis that, “in the prior 21 U.S. government shutdowns, the S&P has averaged 12 gains and nine losses, with a median return of +0.1 percent”.

“Meanwhile, from a macro perspective, each week of a shutdown will likely subtract 0.1pp from GDP that quarter, though the sum total of what was lost will almost certainly be recouped in the very next quarter, once the government re-opens, causing little-to-no net impact overall,” he added.

Rigzone asked the U.S. Department of Energy (DOE), the U.S. Department of the Interior (DOI), and the U.S. Environmental Protection Agency (EPA) how a government shutdown would affect their operations.

The EPA directed Rigzone to the Office of Management and Budget (OMB). The DOE and DOI have not responded to Rigzone at the time of writing.

Rigzone asked the OMB and the White House how a government shutdown would affect the operations of the EPA, DOE, and DOI. The OMB and the White House directed Rigzone to the agencies.

In a statement posted on its website on September 16, the Committee for a Responsible Federal Budget said Fiscal Year 2025 will end on September 30 and added that Congress “has so far enacted zero of the 12 full-year appropriations bills to fund the government for FY 2026”.

“Policymakers have until midnight on September 30 to avoid a lapse in government funding; otherwise, a government shutdown will occur,” the statement noted.

The statement said each federal agency develops its own shutdown plan, following guidance released in previous shutdowns and coordinated by the Office of Management and Budget.

“The plan identifies which government activities may not continue until appropriations are restored, requiring furloughs and the halting of many agency activities,” it added.

“Essential services – many of which are related to public safety – continue to operate, with payments covering any obligations incurred only when appropriations are enacted,” it noted.

“In prior shutdowns, border protection, in-hospital medical care, air traffic control, law enforcement, and power grid maintenance have been among the services classified as essential, while some legislative and judicial staff have also been largely protected,” it went on to state.

The Committee for a Responsible Federal Budget describes itself as a “nonpartisan, non-profit organization committed to educating the public on issues with significant fiscal policy impact”.

Pepperstone describes itself as a global leader in online trading. The company was founded in 2010 “by a team of experienced traders”, the company’s website highlights.

To contact the author, email andreas.exarheas@rigzone.com