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Posted by: 17. October 2013

Back to Business, At Least for Now

I have grown weary of writing blog articles that pertain to the economic impact of Congressional ineptitude. So let us hope that from now on I can get back to talking about the economy in terms of consumers and suppliers…

The Senate has just announced a deal that will re-open the federal government and raise the debt ceiling for a few more weeks. The leaders of the House of Representatives have announced that they will vote to pass the bill as well. This deal was announced just hours before the Treasury ran out of money. So the good news is that we seemingly have averted an economic disaster for now. The bad news is that we may very well be faced with the same problem a few short months from now. Congress did not actually solve the problem, they just agreed to "kick the can down the road."

So what does all of this mean for the economic outlook for the fourth quarter and beyond? I have a few thoughts that I will share:

1)    Government workers actually lost income when the government shutdown. That is income that is lost forever, and will therefore be a drag on economic activity.

2)    Many business decisions in the private sector were delayed due to the uncertainty of the government shutdown. This should not prove to be a significant drag because many of these decisions will likely go forward from here.

3)    Consumer confidence and investor confidence will need to be monitored closely for the next few months. It is too early to tell how all of this will affect confidence levels in the future. The stock market enjoyed a strong rally when the deal was announced. If the market continues to rally, it will be a good sign that investors are putting the fear of default behind them.

4)    The big question for me will be whether consumers, managers and investors use the recent shutdown as an excuse for continuing their sluggish behavior, or perhaps this will be the event that sparks a release of pent-up demand. Honestly, I can see it going either way. But I prefer to sit back and watch rather than try to predict how this will go.

I long for the day when the trends in the markets and the economy are based on the activities of people on Main Street, and even people on Wall Street, and not on the activities of the people that work on Pennsylvania Avenue. That day has not yet arrived, but perhaps we are close. Stay tuned.
 

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