With talk about an impending downturn and predictions everywhere, experts have taken to networks like CNBC to discuss the state of the current economy and what effect, if any, the current government shutdown could have on the country’s economy. We caught some of the interviews and found out who thinks that the economy will be shaken and who thinks it’ll take more time to see any impact, in today’s edition of the BAM Blog…
Current State as Predicted
In his recent interview, Glen Hutchins, on the Board of the Federal Reserve Bank of New York, says he isn’t surprised by what he’s seeing in the economy, in that there’s some pressure right now. He notes that after last year’s tax cuts and the “sugar high” that followed, the country’s current drop to “normalized levels” is exactly what he’d expected. He clarifies that he isn’t saying the U.S. is slowing down, but is returning to trend growth after the tax cut’s effects wore off. Hutchins also makes the point that the economic data (backward looking) isn’t matching the market data (forward looking) and that’s a useful element to realize and think about. Hutchins echoes concerns we’ve noted in previous articles, and says that the markets are predicting a global slowdown, as countries like China and Germany see growth slowing.
Shutdown May Have Lasting Effects
On Friday, Michael Townsend, VP of Legislative and Regulatory Affairs at Charles Schwab, appeared on CNBC and was asked what he thought the ongoing government shutdown could add to the economy. He agreed that if it persisted for a lengthy period of time, it could definitely have a detrimental effect on the country’s economy. Townsend pointed out facts like the Washington, D.C. Area Metro system losing up to $400 thousand dollars a day without the usual number of Federal workers utilizing the transit. He said that for every week the shutdown lasts, there’s a 10th of a percentage point of growth lost. He pointed out that there will be lasting effects like people unable to get loans, the effect on small businesses dependent on Federal workers for income, as well as furloughed Federal workers tapping into retirement funds to pay bills. Townsend noted that there may be some eventual legislation allowing these employees access to retirement funds without traditional penalties, but any proposed changes wouldn’t be enacted soon. Townsend’s points go to what we noted in our previous article, in which Fed Chair Jerome Powell said that typical government shutdowns were short enough in duration not to leave much of a dent in the economy, but if it lasted longer than usual, the data should show it.
Some Experts are Optimistic the Shutdown will End Soon
Finally, Leuthold Group’s Chief Strategist, Jim Paulson, also weighed in on the effects of the government shutdown on his CNBC appearance, saying that yes, if it dragged on through much of the year it would have a significant effect. Paulson, however, remains optimistic that once the shutdown “begins to show itself” that both sides will find a way to move on. He says that he isn’t betting much investment strategy on the shutdown. For his take, Paulson does expect to see a significant slowdown this year, and says that the challenge will be to remain bullish in the face of bad news, as we remained cautious in the face of continued growth last year.