By Lauren Saidel-Baker on Jan 17, 2019 8:30:00 AM
As of this writing, the current partial government shutdown has become the longest in US history, surpassing the previous record – set in 1995 – of 21 days. The shutdown has not changed our economic outlook at ITR Economics, and we maintain that its effects on macroeconomic trends will be limited. In his Executive Summary in our January Trends ReportTM, ITR CEO Brian Beaulieu explains the historical precedent behind our rationale.
If the shutdown continues, furloughs could result in the January jobs report registering a net loss of jobs for the first month since September 2010. The potential decrease in federal government jobs will likely exceed any private-sector job creation during January, and, if it does, the Feb. 1 data release will mark the end of the nonfarm payrolls report's current 99-month streak of continuous job growth –the longest stretch since 1939.
As a result of the partial shutdown, roughly 380,000 federal employees are on unpaid leave, and their jobs may not be included in the jobs data. The data is based on the pay period which includes the 12th of the month; therefore, the jobs of those workers who do not receive a paycheck on the scheduled Jan. 19 payday will be excluded from the report. However, if those employees are promised backpay by Jan. 29 – the date the jobs data is finalized – their jobs will be included in the final tally.
In addition to the furloughed federal workers, 420,000 have been deemed “essential” and are working without pay. These employees will be paid once the shutdown ends; their jobs will therefore be included in the jobs report sum. The Labor Department, which compiles the nonfarm payrolls report, is fully-funded and still operating during the partial government shutdown.
Although an end to the remarkable run of jobs growth would likely garner severe headlines, the actual economic impact will be minor. The number of furloughed government workers represents just 0.2% of the 156.5 million workers in the US civilian labor force. Any impact on the unemployment rate or on general employment conditions will be trivial and, more importantly, temporary.
The US labor market remains tight; a one-month reduction in jobs growth would not reverse this trend. Although some federal workers may attempt to avoid the disruption of increasingly frequent shutdowns by seeking alternate employment in the private sector, the clear majority will remain employed by the government. A temporary reduction in the jobs number would not signal loosening conditions in the overall labor market.
Moreover, business-cycle shifts across the macroeconomy are resilient to temporary market dislocations such as those caused by the partial shutdown. In times like these, it is more important than ever to identify and follow Leading Indicators specific to your own industry and business.
Lauren Saidel-Baker, CFA