US: CBO: 750k Set To Be Furloughed In Shutdown, Econ Impact Depends On Duration
Sep-30 17:20
The Congressional Budget Office releases a short report on the potential impact of a full government shutdown in response to a request by Senator Ernst, here.
- The analysis is based largely on the impact report published after the partial shutdown in Dec 2018-Jan 2019. The key findings are that around 750,000 federal employees could be furloughed (around the generally accepted consensus of 800,000), and that the economic impact - while dependent on the details - could see a short-term negative impact reverse when payments were restarted.
- On the scope of the "CBO estimates that under a lapse in discretionary funding for fiscal year 2026 about 750,000 employees could be furloughed each day; the total daily cost of their compensation would be roughly $400 million." The CBO does not make this explicit but the impact could be more acute if the Trump administration follows through with its threat to fire many workers instead of furloughing them. (It says "the Administration has indicated that it might subject some employees, who might otherwise be furloughed, to a reduction in force."
- On the economic impact: "The effects of a government shutdown on the economy would depend on its extent and duration. For example, CBO reported that the five- week partial shutdown ending in January 2019 delayed discretionary spending for compensation and for purchases of goods and services and suspended some federal services. Once the government reopened, most of the payments were made. At the time, CBO estimated that although most of the real gross domestic product (GDP; real GDP is adjusted to remove the effects of inflation) that was lost during the fourth quarter of 2018 and the first quarter of 2019 eventually would be recovered, about $3 billion would never be. In its report, CBO projected that amount at 0.02 percent of annual GDP in 2019." Most analyst estimates of the GDP impact are around 0.1-0.2pp (annualized) per week of shutdown.
- Most of the other impacts - including "delayed procurements and lapsed contracts during a shutdown" are more difficult to determine, but unsurprisingly "In general, a longer lapse will have larger effects than a shorter one will."
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RATINGS: S&P Upgrades Portugal To A+ From A
Aug-29 20:28
S&P has upgraded Portugal's long-term credit rating to A+ from A, with a stable outlook (had been positive).
- This is the 7th S&P upgrade for Portugal, from a low of BB in 2012-15. Only four ratings are higher (AA-, AA, AA+, AAA). This is the same rating as Slovakia, and just above Spain (A) per S&P.
- Per Bloomberg: "*S&PGR UPGRADES PORTUGAL TO 'A+' ON LOWER DEBT; OUTLOOK STABLE"
STIR: Still Eyeing September And December Cuts
Aug-29 20:16
With few market-moving data points this week, implied Fed rate cuts essentially held onto their post-Jackson Hole upward repricing, adding a couple of basis points of easing for good measure heading into the Labor day weekend.
- Indeed, the lack of movement is somewhat remarkable given this week's extraordinary "firing" of Fed Governor Cook, which is currently being fought out in the courts. In all it probably added to the dovish tone on the near-term rate outlook post-Jackson Hole but not substantially so, at least so far.
- The current path sees a September rate cut priced with nearly 90% implied probability, with 56bp of cuts through end-year (a cumulatively priced second cut in December) and 83bp through March 2026 (3+ cuts).
MACRO ANALYSIS: MNI US Macro Weekly: One Week, Two Labor Days
Aug-29 20:10
We've just published our latest US Macro Weekly - Download Full Report Here
- A busy pre-holiday week for data brought mixed economic signals and little net change in Fed easing expectations, putting next week’s labor day – Friday with its nonfarm payrolls report, of course, with apologies to Monday’s federal holiday – in focus for the FOMC and market participants alike.
- Second-quarter GDP was revised up by more than expected in the second reading, to 3.3% Q/Q SAAR, driven by better-than-previously estimated domestic demand but still leaving 1st half growth in slightly weaker territory vs last year. That said, the Atlanta Fed's Q3 GDPNow estimate jumped to 3.47% (though the implied contribution from net exports in the quarter looks somewhat dubious, as we explain).
- The other major release of the week was July's Personal Income and Outlays report, which showed a modest uptick in income and spending on the month. However, the broader trends remain mixed at best, as real disposable income growth remains soft and services consumption is failing to regain traction.
- Core PCE inflation was close to expectations in July as the Y/Y accelerated to 2.9% for its fastest since February as it moves further away from recent lows of 2.6% having stalled above the 2% target. Recent trend rates are a little hotter but the median FOMC member will still need to see a further acceleration to meet their 4Q25 forecasts from June.
- Labor data were mixed. Latest jobless claims were in line to slightly better than expected, with initial claims trending a little higher but still impressively low whilst continuing claims are broadly plateauing after sharper increases in 1H25. But within the Conference Board consumer survey, the labor differential edged lower again, suggesting a continued upward trend in the unemployment rate.
- Elsewhere: regional Fed activity surveys were individually mixed, but combined generally showed an improvement in both manufacturing and services activity albeit with continued upside price pressures.
- Consumer sentiment (UMichigan and Conference Board surveys) and housing activity remained soft.
- Apart from Gov Waller again making the case from rate cuts, other FOMC colleagues who commented this week were a little more guarded when it came to the need for easing, to our ear.
