State Of The Union: The Art Of No Deal

By Remy Blaire

State of the Union 2018. The White House from Washington, D.C. Wikimedia Commons.

The partial government shutdown barreled into Day 35 with no immediate end in sight. Airports in the northeastern U.S. announced major delays much to the dismay of travelers who meandered through the long lines at TSA checkpoints.

The FAA temporarily halted flights on the morning of Friday, Jan. 25, as regional air traffic control centers reported a staffing shortage. With more workers calling in sick at the nation’s airports, the threat of further disruption to the aviation system raised additional questions about security and the overall shutdown impact.

As furloughed federal employees missed their second paycheck, the worries mounted for many Americans. How long would the longest shutdown in history last? What are the long-term implications for the affected services? And will the strain on air travel result in perpetual delays?

The web sites for the affected federal agencies displayed the message: “Shutdown Due to Lapse of Congressional Appropriations.” As days extended into weeks, weeks surpassed a month, Americans were reminded of the extent of government involvement in the infrastructure of the nation.

The partial shutdown officially came to an end before the sun set on Friday, January 25. President Trump signed a bipartisan continuing resolution that concluded the longest shutdown in U.S. history. Yet, the action was a temporary stopgap measure that would reopen and fund the government until Feb. 15.

CHIPPING AWAY AT SENTIMENT

According to the Congressional Budget Office (CBO), the shutdown cost the U.S. economy an estimated $3 billion while the overall damage totaled $11 billion – although the majority of the latter estimate is expected to be recovered as federal workers return to work. The CBO estimates that the economy will lose 0.4% from the annual growth rate in Q1 2019.

Separately, S&P Global Ratings says the shutdown cost the nation’s economy an estimated $6 billion. Some critics were quick to point out that the costs to the U.S. economy surpassed Trump’s request for border funding security.

Meanwhile, the State of the Union did not be take place as scheduled on Tuesday, Jan. 29.  The Speaker of the House, Nancy Pelosi, invited Trump to deliver the SOTU on Feb. 5. With Trump’s acceptance, the annual event will take place a week later than originally scheduled.

Earlier this month, Danielle DiMartino Booth, CEO of Quill Intelligence, and former adviser to the President of the Dallas Federal Reserve, sat down with me. She weighed in on the partial U.S. government shutdown and its ramifications on the economy and stated that the drag on confidence and growth are detrimental:

 

FEDERAL RESERVE OUTLOOK

The central bank’s January meeting came and went with the Fed indicating that rates won’t be rising soon. The FOMC announced no change in its benchmark rate with a continued pledge to be “patient.” All eyes and ears were on the statement issued by Fed Chair Jerome Powell in the post-announcement press conference. When asked if the Fed is on pause, Powell stated that “This patient period is going to depend on incoming data and its implications for the outlook.”

Danielle DiMartino Booth also graded the performance of Fed Chairman Jerome Powell since he has taken the helm. There is nothing like a progress report from the author of “Fed Up: An Insider’s Take on the Why the Federal Reserve is Bad for America.”

 

With limited data being released by the government due to the partial shutdown it’s been difficult to assess the health of the economy. In January, several data points considered “primary” economic data were not published.

The Commerce Department’s Bureau of Economic Analysis did not release Q4 U.S. GDP data for 2018 as scheduled on January 30. The U.S. employment report for January is scheduled for release on Friday, Feb. 1.

One thing is for certain: disruption to “business as usual” is not favorable. But it is more concerning that this type of disruption does not seem to be backed by strategy for a new alternative order. As earnings season continues, the major technology and industrial companies are issuing guidance that are lower-than-expected. With bellwether firms easing back on forecasts it’s apparent that the shadows being cast on the global growth outlook could darken.

GOFUNDME: CROWDFUNDING FOR THE MODERN ERA

In the era of social media, online fundraising platforms and convenient electronic payments, the stories of assistance for federal contractors and furloughed workers during the shutdown are plentiful. It’s difficult not to grimace when hearing dire stories of Americans struggling to make ends meet and listening to some of the tone-deaf responses coming out from politicians.

If you’ve been paying close attention to some of the GoFundMe campaigns, you’re aware of some of the obscure and bizarre pages that have popped up. Some of the campaigns could be deemed as extreme, leading to many late-night comedians and pundits mocking the huge donations and how one can raise funds for just about anything. Of course publicity and hype can help direct eyeballs to certain campaigns.

The shutdown pain was immediate for those who missed their second paycheck and the pain spilled over into the U.S. economy. It can be surprising to see how quickly donations poured in for some GoFundMe campaigns but it is also a sign of the changing times. Social media and crowdfunding platforms have changed how citizens voice their support as well as opposition.

SHUTDOWN AFTERMATH

When the partial government shutdown finally came to an end, Americans let out a collective sigh of relief. Yet there are risk events on the horizon. The countdown clock is ticking for the major fiscal deadline of the debt ceiling on Mar. 1. Don’t forget that the that date also marks the hard deadline for a U.S.-China trade deal. The SOTU address may mark the dwindling days until another shutdown is avoided.

Many Americans hope that the 15th of February brings no surprises. There is nothing worse than the bite into the unexpected piece of unpalatable chocolate.

Forrest Gump is known for his famous quote, “My mom always said life was like a box of chocolates. You never know what you’re gonna get.”

Feb. 15 is the day after Valentine’s Day but love may not be in the air in Washington D.C. There are concerns that Shutdown 2.0 could become a reality. It is too soon to tell whether Trump and lawmakers will reach a compromise by the deadline or another standoff will commence. The President stated that if Democrats and Republicans can’t reach an agreement on border security, then he would bypass Congress for funding.

The stock market doesn’t like uncertainty and investors sure don’t like the accompanying instability. Yet, the Dow Industrials, S&P 500 and Nasdaq Composite settled higher in January. The major equity averages advanced over 7% for the month.

Shutdown 2.0 on the horizon? We will all have to wait and see if an agreement is negotiated and whether Congress passes another continuing resolution.