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How Much Effect will the Shutdown Really Have?


The idea of a partial government shutdown may sound scary - and for those federal employees who are being given unpaid time off, it is - but what are the real repercussions?

The idea of a partial government shutdown may sound scary — and for those federal employees who are being given unpaid time off, it is — but the repercussions actually aren’t as bad as one might think.

Historical data from Gallup revealed that in past conflicts, the effects ranged from none to short-lived. However, this government shutdown is coming just two weeks ahead of when the country is expected to reach the debt ceiling and Republicans and Democrats will have to sit down for more negotiations.

The last partial government shutdown was in 1995 and Americans’ views of President Bill Clinton, Speaker of the House Newt Gingrich, Congress and the economy changed little in the months after the shutdown.

While Clinton’s job approval stood at 52% prior to the shutdown and it dipped to 42% just after the shutdown, approval was back up to 52% four months after the shutdown.

Furthermore, Gallup points out, Americans already have a very poor view of Congress, “meaning there is not much room for their perceptions of the legislative branch to worsen further.”

The person who might have the most to lose is Speaker of the House John Boehner, whose favorably rating was just 31% in April and who is facing pressure from both parties. James Mackintosh with the Financial Times points out that the public blamed Republicans for the shutdown in 1995 and if that holds true this time, then the party’s hand will be weakened in debt ceiling negotiations.

Beyond politicians, investors worry how the shutdown could affect the stock markets. A chart from Merrill Lynch revealed that shutdowns have had little effect on shares since the 1980s. Ten of those 11 shutdowns were short, lasting five days or less. But even the 21-day shutdown under Clinton did little harm. The S&P 500’s returns were 3.8% a month before and 1.5% two weeks prior; but returns were almost flat during the shutdown and down just 0.8% in the two weeks after. A month after that shutdown returns were 4.8%.

“If history is a guide, it is possible that [Americans’] views of the situation in the country may worsen in the short term, which for an economy — and job market — still in recovery, is troublesome,” according to Gallup. “But, long term, it is unclear whether a possibly short-lived government shutdown will ultimately negatively impact the economic situation in the U.S.”

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