As you may be aware, a government shutdown happened as of October 1st. I wanted to provide you with a brief overview of what this means for the economy and your investments.
Key Points:
Historical Context
- Over the past 30 years, the government has been shut down for a total of 80 days
- During those 80 days, we experienced ZERO days of recession
- There is no historical evidence linking government shutdowns to economic downturns
What Continues Operating
- Treasury receives revenue and makes all payments
- Social Security, Medicare, and Medicaid payments continue
- Treasury bondholders receive full principal and interest
- Military, border control, FAA, weather service, and Post Office remain operational
Market Impact & Economic Policy Considerations
- Markets are showing no signs of concern about the shutdown
- Reduced government spending on the margin is actually positive for the U.S. dollar
- The shutdown could provide additional justification for faster interest rate cuts
- Less government spending = potential downward pressure on rates
- However, we may see delayed economic reports (jobs data, jobless claims) during the shutdown period
What’s Different This Time
The Trump Administration is taking a harder stance, requiring agencies to identify non-essential workers who could be permanently let go rather than furloughed. This represents a potential watershed moment for federal spending policy:
- Government jobs have already been declining
- Permanent workforce reductions (not just furloughs) are being considered
- This could boost long-term economic growth potential by shrinking government size
Bottom Line
While government shutdowns create headlines, historical data suggests minimal economic impact. The current approach may actually have positive long-term implications through reduced government spending and enhanced dollar strength. Any near-term economic weakness would more likely stem from monetary policy or tariff volatility, not the shutdown itself.
We will continue monitoring the situation and remain focused on the fundamental factors that drive long-term investment returns.
Please don’t hesitate to reach out if you have any questions or concerns.
