Roberto Garnero @openwings: "1. The impact of the US..."

Italy

Edited

1. The impact of the US shutdown on the labour market Federal Employees and Contractors The most immediate and visible effect is the disruption to the lives of the federal workforce: • Mass Furloughs: Hundreds of thousands of non-essential federal employees (estimates range from 750,000 to 900,000) are forced into a temporary, unpaid leave. These workers are officially classified as "unemployed on temporary layoff" in labor reports, which can cause a temporary, artificial spike in the national unemployment rate. • Working Without Pay: "Essential" employees—including air traffic controllers, border patrol agents, and many TSA staff—must continue working without a paycheck. However they are legally guaranteed back pay once the government reopens, unlike contractors. • The Contractor Crisis: Unlike federal employees, who are generally guaranteed back pay by law once the government reopens, thousands of government contractors and their employees are not. For these private-sector workers, lost wages are often lost forever, resulting in immediate job loss or severe financial distress. • Threat of Permanent Layoffs: In a concerning break from previous shutdowns, some administrations have threatened to use the shutdown to execute a Reduction in Force (RIF), which would result in the permanent elimination of federal positions, creating the risk of lasting structural job losses. 2. The Ripples: Consumer Spending & Local Economies The financial uncertainty felt by federal workers and contractors quickly spreads, creating a drag on the broader economy: • Dip in Consumer Spending: With paychecks on hold, federal employees and contractors are forced to drastically cut back on non-essential spending. This immediately hurts local businesses—restaurants, retail shops, child care centers—especially in areas with a high concentration of federal workers like the Washington D.C. metro area. • Small Business Freeze: Businesses that rely on federal permits, licenses, inspections (like food and drug inspections), or loan approvals (like SBA loans) may have their operations or expansion plans put on hold, delaying private-sector hiring and job creation. 3. The Uncertainty Tax: Data and Confidence Beyond direct job losses, the shutdown clouds the economic outlook for everyone: • Delayed Economic Data: Critical labor and economic reports from agencies like the Bureau of Labor Statistics (BLS) and the Census Bureau may be delayed. This leaves policymakers (like the Federal Reserve) and businesses flying blind when making key decisions about interest rates, hiring, and investment. • Hiring Decisions: Facing a weakening job market and an uncertain political landscape, many private-sector companies may adopt a "wait-and-see" approach, pausing hiring plans until the situation is resolved. The Bottom Line: A government shutdown is more than a partisan fight; it is an immediate shock to the labor market. While furloughs for federal employees are often reversed with back pay, the financial stress, long-term impact on contractors, and the broader chilling effect on business confidence all work to slow job growth across the nation. The impact on the stock market In a short shutdown, some short-term volatility is to be expected. This is however not the type of volatility that triggered worries. Since 1976, there have been 21 shutdowns, and none of them caused a major impact on the stock market. Our portfolio Over the next few days, there will likely be a lot of news surrounding the shutdown. Higher levels of uncertainty may arise, and some less experienced investors will probably be panicking. As for me, I will not be selling or making any major portfolio changes based on this event. If some consumer stocks ( $AMZN (Amazon.com Inc) $MELI (MercadoLibre Inc) ) become heavily discounted, I might even buy more if my decision process supports that choice. I see this event as more political than economic, and I believe it will pass while the stock markets ( $SPX500 and $NSDQ100 keep rolling forward.

4 Mentioned

AMZN

Amazon.com Inc

MELI

MercadoLibre Inc

SPX500

NSDQ100

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