Another government shutdown is looming. This one could hit differently in the economy.
Legislation to fund much of the US government appears in peril this week, with odds spiking that another partial government shutdown will strike Friday at midnight.
But the effects of the possible stoppage could be felt differently in the economic arena this time around. Funding for areas like the Department of Commerce (which releases some economic data) and the Department of Agriculture (which administers food benefits) are not set to be impacted, no matter how the week ahead plays out.
The budgets for other key departments — from the Department of Labor (which releases the most closely watched economic data) to government agencies involved in keeping America’s airport operations flowing — sit in the middle of what could be a heated week on Capitol Hill.
The ongoing negotiations to avert a shutdown were upended over the weekend when federal agents shot and killed an American citizen in Minneapolis during ongoing protests. The man, Alex Pretti, was disarmed by agents before being fired upon, according to multiple videos of the incident.
The shooting instantly rekindled tensions after another fatal shooting there earlier this month. Senate Democrats quickly vowed to block a funding bill on the docket this week that, among other things, funds the Department of Homeland Security (DHS).
“Senate Democrats will not allow the current DHS funding bill to move forward,” Senate Democratic Leader Chuck Schumer said in a statement, adding that the offices of Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP), which are part of the larger Department of Homeland Security, need an “overhaul.”
He was joined by key Democrats who worked to end the stoppage last time. Indeed, the party appears united in opposing any DHS funding for now. Any funding legislation requires 60 votes to advance, meaning united Democrats can block it.
Schumer called for five other funding bills to be passed — but both partisan and logistical concerns this week make that difficult.
In any case, with just six funding bills at issue, a stoppage Friday would have more limited economic effects than last fall’s shutdown.
There are 12 annual appropriations bills needed to fully fund the US government, and six have already been given presidential approval.
The core question, as Henrietta Treyz of Veda Partners put it in a note, “is whether all six remaining appropriations bills, which cover approximately 78% of the federal government, or just the Department of Homeland Security will see a funding lapse on Friday.”
Key economic data that could stop
The last government shutdown covered all 12 areas of appropriations and lasted a record 43 days.
The government function most closely watched by markets — economic data — would likely be impacted again but would unfurl differently.
One bill that is in peril would fund the Department of Labor, meaning a shutdown could once again delay or cancel key economic data, like the monthly jobs report and the Consumer Price Index (CPI).
But funding for the Commerce Department has already been approved, meaning that the agency’s Bureau of Economic Analysis is set to keep its doors open. The BEA provides material like Gross Domestic Product readings and the Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation.
No formal guidance on how a shutdown could affect Department of Commerce inflation data has been offered, but these two closely watched inflation gauges (CPI and PCE) sometimes rely on the same data. As a BEA summary of its sourcing methods notes, some PCE calculations rely on CPI results as well as other sources.
The key question around Department of Labor data is the length of any possible shutdown.
Tobin Marcus of Wolfe Research wrote to clients Monday morning, “We’re currently anticipating a much shorter shutdown that would probably (at most) affect the timing of next week’s payrolls release, but not the integrity of data collection for any of the major series.”
Stephen Juneau, a senior US economist at BofA Securities, told Yahoo Finance the potential effects are likely to be modest but said he was watching data effects closely.
“We’re still recovering from some of this missing data” from the last shutdown, he said. “I think that will cause more of a disruption, both to markets but also for economists, for the Fed, for policymakers as well.”
Impacts at the airport
Air travelers could feel some pain again if a shutdown moves forward.
The Transportation Security Administration (TSA) is part of the Department of Homeland Security, meaning its funding is very much under debate this week.
The US Department of Transportation, meanwhile, oversees air traffic controllers as part of the Federal Aviation Administration (FAA). That group’s funding is also up for debate as part of this week’s Capitol Hill package.
Recent history saw both TSA and air traffic controllers required to report to work during the shutdown, with their pay deferred.
Last year, that led to significant disruptions, with air travel limitations enacted when there weren’t enough air traffic controllers in towers.
Funding for the Pentagon and State Department, as well as other prominent agencies like the US Departments of Health & Human Services and Education, is also under debate this week.
It remains to be seen if these five funding bills can be cleaved off from DHS funding and enacted before the Friday deadline, but Senate Republicans so far have signaled they are looking to pass the entire package.
But even if Senate Republicans relent, the logistical challenges could be sizable, with the House of Representatives not scheduled to be in session this week.
The House is currently scheduled to return to Washington Feb. 2 — after a partial shutdown would have begun.
What won’t be impacted this time: Food benefits
The delivery of food benefits through the Supplemental Nutrition Assistance Program (SNAP) —previously known as food stamps — was a key worry for poorer Americans during the last shutdown. But the deal that ended that stoppage extended SNAP funding through September, so those benefits will continue flowing no matter what happens this week.
The situation is similar for the USDA’s Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) which likewise has its funding secured through the end of the fiscal year.
Another quirk to watch is the Internal Revenue Service, which is under the umbrella of the Treasury Department.
Funding there remains up in the air this week, even as the formal tax filing season began Monday.
“We fully expect that they will once again bend the rules to keep processing tax returns if needed, which should mean that delays (if any) will be minor,” Marcus wrote.
Ben Werschkul is a Washington correspondent for Yahoo Finance.
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