Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=224926
Story Retrieval Date: 4/25/2014 3:45:27 AM CST

Top Stories
Features
Federal Workers

Fareeha Ali/MEDILL

Federal employees returned to work on Thursday after being furloughed for the last 16 days during the government shutdown.


Economy still uncertain as shutdown ends and federal employees go back to work

by Fareeha Ali
Oct 17, 2013


Federal employees returned to work on Thursday after being kept home without pay for 16 days as a budget impasse forced a government shutdown. But resolution of the fiscal crisis has done little to clear up the economic outlook.

 

While the true impact of the shutdown isn’t yet known since government economic reports were suspended, economists have already begun downgrading their forecasts for U.S. economic growth.  

 

Moody’s Analytics economist Nate Kelley said the firm dialed down its fourth-quarter GDP forecast to an annualized 2.0 percent from 2.5 percent because of the shutdown’s impact on business activity and consumer sentiment.

 

“This deal really accomplishes nothing. It just sets us up for another crisis in the next couple months,” said Kelley in an interview.

 

The Thomson Reuters University of Michigan Consumer Sentiment index fell to 75.2 on Oct. 11,  the weakest reading in nine months. The drop, if sustained, could threaten consumer spending during the holiday shopping season, an important engine of growth in the U.S.

 

Consumer expectations are less than spectacular right now,” said Kelley. Positives such as the housing recovery and the buoyant stock market could underpin consumer confidence through the end of the year.  After that, the outlook is cloudy.

 

 Diane Swonk, chief economist at Mesirow Financial, wrote in a note Thursday that economic growth in the current quarter would be shaved by 0.3 percent due to the shutdown.

 

Swonk predicted last week that uncertainty created by the shutdown would prevent the Federal Reserve’s policymakers from pulling back, or tapering, its $85-billion in monthly bond purchases known as quantitative easing.

 

“All of these things, from weaker economic conditions going into the fourth quarter to the government shutdown and uncertainty over the outlook for the debt ceiling and fiscal policy in general delay the Fed,” Swonk wrote in an Oct. 10 report.

 

Moody’s has also pushed its forecast for the Fed tapering officially to January, though Kelley argues that it could be even later than that.

 

“I think the uncertainty surrounding Washington will keep the data soft over the next several months,” Kelley said. “I don’t see how the Fed could taper before February or March.”

 

The shutdown’s long-term effects on the labor market are unclear. In the short-term, furloughed federal workers will receive back pay for the last two weeks, according to the budget deal reached by the government. But Congress must reach another budget deal by mid-January or risk another shutdown.

 

“There are no real expectations that the powers that be will change their position in three months from what it was two weeks ago,” Brent Barron, president of American Federation of Government Employees Local 648, said.


That uncertainty is a burden that many government employees are growing tired of carrying.

 

For a lot of people, they are reexamining their decision on whether they are going to stay working for the government,” Barron said. “This is enough to make them go into retirement or choose other employment outside the federal government.” 

 

Eamon Boyd, an employee at the Office of the Inspector General for the Postal Service in Chicago, said the last 16 days were unnerving because of the uncertainty of getting a paycheck.

 

“I was uncertain the last couple of weeks because I was not sure when I was going to get paid,” Boyd said.

 

Contrary to some other furloughed employees, however, Boyd said he is not uncertain about his job security in the next three months.

 

“Really, all this was just a paid vacation.”