Daily Capital

How Does the Government Shutdown Impact the Economy?

Government Shutdown 2019

We have now experienced the longest government shutdown on record. This has disrupted nine Federal Departments, and if a Federal worker is deemed “essential” they must work without pay, while others are either furloughed or placed on temporary leave. While the shutdown is undoubtedly affecting many people’s lives, another question we are getting is: how does a government shutdown, especially one as long as this, impact the overall economy?


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Does it Impact the Overall Economy?

So far, it has had minimal impact on the overall US economy, but there has been a clear disruption in certain pockets of the economy and significant impacts on the individual government workers affected. Eventually the market would not be able to ignore it. Some estimates show a 0.5% hit to GDP if the shutdown lasts through January.

History has shown past shutdowns have had very little impact on stock markets, but the longer this shutdown lingers, the more the risks increase. We are continuing to monitor the situation, but are cautiously optimistic the situation will be resolved with minimal market impact. If it lasts into February we expect it would start to cause more volatility into already jittery markets, but would remain just one factor.

If the shutdown lasts into February, it may cause more volatility.

The Importance of an Emergency Fund

During the course of this shutdown, many government workers have gone without pay. Unexpected events that affect our cashflow can happen — and this is why it’s so important to have an emergency fund. Personal Capital generally recommends that people have around 3-6 months of funds available to them for a “just-in-case” scenario. Generally, an FDIC-insured savings vehicle with a meaningful interest rate is a good place to house emergency funds. High yield savings accounts and bonds provide significantly higher returns than a checking or low yield savings account.

Read More: Market Commentary

*Read Disclosures

The content contained in this blog post is intended for general informational purposes only and is not meant to constitute legal, tax, accounting or investment advice. You should consult a qualified legal or tax professional regarding your specific situation. Keep in mind that investing involves risk. The value of your investment will fluctuate over time and you may gain or lose money.

Any reference to the advisory services refers to Personal Capital Advisors Corporation, a subsidiary of Personal Capital. Personal Capital Advisors Corporation is an investment adviser registered with the Securities and Exchange Commission (SEC). Registration does not imply a certain level of skill or training nor does it imply endorsement by the SEC.

Craig Birk, CFP®
Craig Birk leads the Personal Capital Advisors Investment Committee and serves as Chief Investment Officer. His focus is translating improvements in technology into better financial lives. Craig has been widely quoted in the Wall Street Journal, Bloomberg, CNN Money, the Washington Post and elsewhere. Prior to Personal Capital Advisors, he was a leader within the portfolio management team at Fisher Investments, helping assets under management grow from $1.5 billion to over $40 billion. Craig graduated from the University of California at San Diego and has earned the Certified Financial Planner® designation.
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