MORGAN STANLEY: Now That The Government Has Shut Down, Here Are 4 Things To Expect

Morgan Stanley’s chief U.S. economist Vincent Reinhart published a brief note minutes after
the U.S. government shutdownwent into effect.

“Dysfunction is not new, in that this marks the seventeenth shutdown in the past 40 years,” wrote Reinhart. “About 800,000 government workers will stay home, as federal employees who cannot be paid should not work.”

Here’s the key takeaway from the note:

In addition to finger pointing to assign blame, expect:

  • A 15 basis point drag on fourth-quarter real GDP growth, at an annual rate, for every week of shutdown as those furloughed workers do not put in their usual hours;
  • Most data releases to be delayed, including the employment situation for September that was scheduled to be out on Friday, October 4;
  • The quality of some official data to degrade as the shutdown lengthens because workers will not be in the field to collect the raw information;
  • All Treasury payments to be processed, including principal and interest, as its fiscal agent, the Federal Reserve, remains open for business.

“In the back-and-forth of legislative action, the ball is now in Speaker John Boehner’s court,” added Reinhart. “The heat will build on politicians from constituents who were furloughed, inconvenienced, or fearful of market consequences. That is why we believe the odds favour a short event — over in one week.”

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