The government shutdown in October may have only lasted 16 days, but the fallout from the closure will be felt in our economy for a long time to come. While it’s heartening to see that the third quarter GDP numbers came in slightly higher than some analysts had projected, there is almost no way that the shutdown won’t exert some kind of drag on our economic growth going forward.
There was, of course, less spending when the government was shut down, particularly among the hardest hit by the closure: government employees, many of whom were forced to sit at home hoping that the politicians would be able to work things out. While we avoided a true disaster by not defaulting on the national debt, we came perilously close to what would have been a very bad outcome with even more dramatic long-term implications. In some respects it was like a game of chicken: no one was going to win in the end. There is a solid argument to be made that a great deal of damage has already been done—international trading partners like China and Japan are getting visibly nervous, and global confidence in our leaders and our markets has clearly been shaken.
One possible silver lining is that the stock market has really shown resiliency this year. According to some, that might be a little worrying, because, sooner or later, something has to give. We can’t continue spending anywhere near the same pace if we want to be able to chart a long-term course for economic growth. The stock prices we are seeing might not reflect a real economic recovery—you’re seeing a gain because people are willing to pay a higher price for earnings, not revenue. But those earnings have to keep going up to keep the “recovery” going, and that’s ultimately not sustainable under the current conditions. Many insiders are watching the market closely, because they frankly don’t understand why it’s going up. Investors would be wise to do the same, and to keep a very close watch on the market in the near future.