Shutdown effects in October

November 8, 2013

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One month after the beginning of the government shutdown, the aftereffects are still being measured in recent economic reports. 

Federal Reserve fiscal policy success
Confidence among American consumers sank like a rock in October during the 16-day government shutdown, according to a recent Gallup poll. In thesharpest drop since 2008, the economic confidence survey was down 16 points for the entire month of October. Confidence reportedly returned closer to pre-shutdown levels after lawmakers passed the debt deal and reopened the government, but still remain lower overall.

Despite the lack of confidence, spending among American consumers actually increased for the month and the housing market continued to see home prices rise. The economic improvements have some analysts pointing out that the quantitative easing program by the Fed may be successful, though unsustainable in the long run and somewhat flawed in its goals. Some even suggest that the Fed should temporarily increase its spending in order to speed up the process before tapering, according to Reuters.

"The unemployment rate is down almost a full point from when we started this program in September 2012," James Bullard, St. Louis Fed president, told CNBC. "We've had faster job growth. Every jobs report that continues to show more jobs being created and a tick down in the unemployment rate is going to make the probability of a taper go up."

With a better economic outlook, Americans anticipate the Fed will eventually reduce its monthly bond-purchasing for steadier, more stable and sustainable growth. However, the government shutdown seems to have complicated measurements of how quickly the economy is recovering.

October jobs report
In the midst of the government shutdown, federal agencies such the Department of Labor were unable to continue normal operations and measure the number of jobs that were added to the economy in September. With all the uncertainty surrounding Washington politics, employers were less likely to hire in October. The shutdown had an impact on an estimated 50,000 payroll jobs, according to Reuters. Fortunately, those jobs are expected to come back over the next few months.

"It's going to be difficult to interpret what happened in the labor market in October," Gus Faucher, PNC Financial Services' senior economist, told Reuters. "I wouldn't put too much weight on the employment report one way or another."

After the disruption caused by the shutdown, it is difficult to gauge how accurate the upcoming October employment report will be. Economists at Reuters predict the unemployment rate will creep back up to its pre-September figure of 7.3 percent.

"It is basically impossible to determine how many private sector workers were affected by the shutdown as well as the timing of their pay periods and the specific arrangements made because of the shutdown," JP Morgan Economist Daniel Silver stated to Reuters. "We expect these indirect effects of the shutdown to be dispersed across a variety of industries, so it is unlikely that we will be able to see a clear impact of the shutdown in a specific sector."