Today has surprised some people who went about their daily business without knowing what's closed in a government shutdown.
Another surprise: Markets didn't plummet. There are a few reasons for that:
- The government isn't entirely closed.
- A closing isn't as uncommon as it is being made out to be. Government shutdowns have occurred 18 times since 1976.
- Negotiations are still being talked about behind the scenes.
- Markets are really more concerned about the debt ceiling deadline (which is now Oct. 17).
And assuming a deal is reached sometime within the next few weeks, the impact on fourth-quarter economic growth from this U.S. government shutdown is expected to be relatively minimal. Any loss is expected to be easily made up in Q1 of 2014.
Nonetheless, a government shutdown is still a very big deal, no matter the duration.
Failing to reach a deal Monday night, with the Republican-led House of Representatives insisting on delaying U.S. President Barack Obama's signature healthcare reform bill (aka Obamacare) as a condition for passing a bill, the shutdown began at 12:01 a.m. Tuesday. It marks the first government shutdown in 17 years. Last time, services were suspended for 28 days.
Just after midnight, President Obama tweeted: "They actually did it. A group of Republicans in the House just forced a government shutdown over Obamacare instead of passing a real budget."
As the 12 p.m. deadline approached, the White House budget office started notifying federal agencies to begin an "orderly shutdown."
Some 800,000 federal employees face unpaid leave, with no guarantee of back pay once the deadlock is over. Staff affected include 400,000 at the Department of the Defense, 40,200 at the Department of Commerce, 12,700 at the Department of Energy, and 18,500 at the Department of Transportation.
What's Affected in a Government Shutdown
Because most essential government operations will continue as normal, a good majority of Americans won't feel the effects of a short-term shutdown. However, a prolonged shutdown is another story. The economy will sorely suffer, and Americans in need of government services will be greatly inconvenienced.
Experiencing no interruptions:
- The Federal Reserve
- Department of Homeland security
- The Justice Department
- Staff at federal prisons
- U.S. Postal Services will continue
- Air traffic control
- Social Security checks will be sent
- Troops will continue to be paid
- The SEC will continue securities filings
Also not affected is what's at the heart of the shutdown issue: Obamacare. Some of the controversial healthcare law has already begun, such as provisions that expand prescription-drug discounts and allow young adults up to age 26 to remain on their parents' healthcare plans.
Additionally, the online marketplaces to help individuals buy insurance officially opened Tuesday.
Among services affected by Tuesday's shutdown:
- The Smithsonian Institution and a combined 19 museums and galleries in D.C. closed.
- National State Parks, including the Statue of Liberty, Yosemite, and Alcatraz, closed.
- Passport and visa applications go unprocessed.
- Veteran benefit checks are delayed.
- The Centers for Disease Control and Prevention stops its seasonal flu program.
- The Environmental Protection Agency closes.
- The Department of Housing and Urban Development will not be able to provide local housing authorities with additional money for housing vouchers.
- Government data is delayed, including Friday's crucial September jobs report.
Monthly job reports have been under the microscope for the last several months. Analysts have been scouring the data for any hints to when the Federal Reserve may start tapering its market-friendly $85 billion a month bond-buying program and to get a read on health of the economy. The central bank has made it clear it will hold its benchmark interest rate near zero for at least as long as the unemployment rate stays above 6.5% and the outlook for inflation is no more than 2.5%.
Economists expect employers to have increased headcount by 181,000 in September. That would be the largest gain in five months. The jobless rate is projected to hold steady at 7.3%. But, if the shutdown continues through Friday, as anticipated, we won't know. The uncertainty creates more market volatility and is apt to send scores of investors to the sidelines.
Moreover, as Capitol Hill lawmakers grapple with the government shutdown, the Oct. 17 deadline for extending the government's borrowing limit and the prospects of a U.S. default looms larger.
The government shutdown has a silver lining for smart investors - here's how to profit: Why the Government Shutdown Is Good for Investors
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