The U.S. federal government shut down one minute into October, bringing with it uncertainty about jobs and the economy.
The shutdown hasn’t brought significant turmoil to the stock market as of yet. Most notably, futures have dropped but not significantly, with the Dow shrinking 0.41%, the S&P 500 down 0.45%, and the Nasdaq losing 0.50%, at the time of publishing.
Meanwhile, gold prices have skyrocketed in response to the shutdown, reaching an all-time high early Wednesday morning that neared $4,000.
Just after the day’s 12:01 a.m ET shutdown, spot gold reached over $3,894, while U.S. gold futures hit $3,922.
Both have since dropped slightly, but remained at significant highs at the time of publishing.
Gold prices have risen significantly this year amid increasing economic uncertainty and a weaker dollar. As of early Wednesday, they were up roughly 46% year to date.
Investors tend to gravitate toward so-called safe-haven assets during times of uncertainty. Bitcoin and other cryptocurrencies were also up on Wednesday as the shutdown began.
How bad could depend on how long
Historically speaking, a typical government shutdown shouldn’t have a lasting impact on the economy, experts point out.
“Government shutdowns tend to be high profile though low-impact market events,” according to a report last week from financial company Truist. “In the previous 20 shutdowns, there has been almost no change, on average, for the S&P 500, while it has been in positive territory 50% of the time during the shutdown period.”
However, Truist notes that this is “barring a prolonged shutdown.”
Most government shutdowns have gone on for less than a few days, though the most recent one—during President Trump’s first term in office—lasted from December 22, 2018 to January 25, 2019.
That’s a record total of 35 days. The Congressional Budget Office reported that it cut $3 billion in real GDP for the last quarter of 2018.
At the time, about 300,000 employees were furloughed, while another approximately 500,000 individuals had to work without pay. All federal workers received back pay once the shutdown was over. As Truist notes, this influx of payments should allow the GDP to recover on its own.
But this time around, the shutdown could bring permanent job loss, according to a memo viewed by Politico ahead of the shutdown.
Under Director Russ Vought, the Office of Management and Budget (OMB) instructed agencies to look at removing employees working on programs, projects, or activities that have another source of funding, will see their discretionary funding lapse on October 1, and don’t align with Trump’s priorities.
Pushback has been swift. On Tuesday, U.S. Representative James Walkinshaw, a Democrat from Virginia, called the OMB’s order an “illegal power grab” in an MSNBC opinion piece.
The same day saw the American Federation of State, County and Municipal Employees (AFSCME) and the American Federation of Government Employees (AFGE) sue the Trump administration for these “mass firing” threats.
The groups claim that the administration is “misusing the shutdown process for partisan ends and violating the very laws that govern how shutdowns are supposed to function.”
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