EuroWire March 2019

Transatlantic cable

† † Stress on the financial sector: Banks and credit unions are scrambling to help unpaid federal workers by deferring mortgage payments, offering free or low-cost loans, and extending overdraft protections. Industry leaders say the financial sector can shoulder the burden “for now,” but that lenders could face difficult choices if the shutdown rambled into February. A prolonged shutdown could lead vulnerable federal workers toward foreclosures or costly debt cycles. “I don’t even want to fathom that at this moment,” said Richard Hunt, president and CEO of the Consumer Bankers Association. “I still think the worst is yet to come.” (nb President Trump had indicated he will sign a bill passed by Congress that would grant back pay to federal workers affected by the shutdown. But that would not kick in until the shutdown ends, leaving employees responsible for major expenses incurred in the interim.) † † Obstacles for businesses of all sizes: Businesses in major federal hubs are not the only ones harmed by the shutdown. Some smaller firms are struggling to stay afloat without promised loans from the Small Business Administration (SBA), which is closed during the funding impasse generated by Mr Trump’s effort to compel Congress to facilitate his plan for walling off the USA from Mexico. Meanwhile, larger corporations and start-ups are unable to file stock offerings and other mandated paperwork with the Securities and Exchange Commission (SEC) until the government fully reopens. The SEC closure also leaves US financial markets without their chief watchdog. While the agency can continue doing time-sensitive and emergency legal work, it is unable to conduct most of its standard oversight during the shutdown. † † More economic uncertainty amid global fears: While the USA continues to experience low unemployment, solid growth and low inflation, analysts fear that an economic slowdown in China and emerging markets could weigh on the American economy. † † On this last point – at which USA economic concerns intersect with those of other global economies – Mr Lane of The Hill noted that the Trump administration faced several crucial economic challenges in March. These included a self-imposed deadline to reach a trade deal with China and the re-imposition of the US federal debt limit. Together with Moody’s and Standard & Poor’s, Fitch Ratings Inc is one of the Big Three credit rating agencies. Fitch has threatened to downgrade the credit rating of the United States if the shutdown were to become intertwined with the debt-limit battle. But, wrote Mr Lane, the US Treasury Department could activate “extraordinary measures” to push the deadline into the summer, if need be. Dorothy Fabian USA Editor

The Hill , a political newspaper and website in Washington DC, on 12 th January published the article “Five Ways the Shutdown Is Affecting the Economy.” The reference was, of course, to the partial shutdown of the US government ordered by President Donald J Trump, then entering its fourth week with no end in sight; and, according to economic reporter Sylvan Lane, having injected “a fresh dose of uncertainty into an increasingly complicated economic landscape for the US.” Some 800,000 federal employees missed their pay cheques on 11 th January, putting a strain on household budgets and threatening obligations like mortgage payments and credit card bills. On 10 th January, a GoFundMe spokeswoman told the news-based cable TV channel CNN that workers who said they were struggling had launched more than 1,500 crowdfunding campaigns for financial assistance since the shutdown began to bite at the New Year. But Mr Lane’s emphasis was on the injurious effects of the shutdown on the US economy as a whole, as well as some even broader implications. The following, condensed and lightly edited, gives his fivefold take on the probable economic consequences of the shutdown, as perceived in mid-January: † † Weaker consumer and business sentiment: Businesses and communities that depend on consumer spending from the federal workforce are already feeling the pinch. Furloughed employees and sidelined government contractors are looking for alternative ways to pay their bills and curtailing discretionary purchases. Consumer spending accounts for about 70 per cent of the $20 trillion US economy, and the White House Council of Economic Advisers (CEA) estimates that each week of the shutdown will cost $1.2 billion, or 0.3 per cent of the economy. An extended shutdown could chip away at consumer and business sentiment already battered by the volatile stock market and trade battles, said Mark Hamrick, senior economic analyst for the New York-based consumer financial services company Bankrate. “There’s a lot there that they just simply can’t count,” Mr Hamrick told The Hill . “Whether it’s the White House or the CEA or private economists, they can talk about how this amount of income wasn’t essentially available, but it’s very difficult to quantify the multiplier effects from that.” † † Data freeze leaves economists in the dark: Policymakers and analysts are facing challenges assessing and responding to the shutdown. Economists have been deprived of a massive trove of federal data published on an almost-daily basis by the Commerce Department, one of the several wings of government closed during the shutdown. The department collects and analyses figures measuring gross domestic product, price increases, wage growth, retail sales, and international trade metrics that economists, traders and policymakers rely on for their analysis. Federal Reserve chairman Jerome Powell said on 10 th January that a prolonged shutdown will hinder the US economy, and that the central bank will “have a much less clear picture” of the harm since economic data is not available.

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March 2019