Goldman Sachs: Government Shutdown 'More Likely Than Not'

Goldman Sachs economists said a temporary government shutdown is “more likely than not” after Sept. 30 when the fiscal year ends, according to a customer note by the firm’s chief US political economist, Alec Phillips, sent on Sunday, according to Reuters as well a multiple other news reports.

Although the impact to GDP is predicted to be negative and still low, that would include a 20-basis point weekly decline so long as a shutdown were in place. That loss would likely reverse itself the quarter after a shutdown.

There are also potential impacts on private industry, including various problems that the CRE industry could expect.

Multiple of factors are playing into the likelihood of a shutdown, including but not necessarily limited to the following, as the news reports and GlobeSt.com analysis suggest:

• There is clear political turbulence going into a presidential election year and both major parties seek advantage going out of 2023 and into 2024.
• The GOP has a thin majority in the House and Speaker Kevin McCarthy has to appeal to some extremely conservative factions to keep this position and power.
• When Congress doesn’t pass annual spending bills, it’s generally over the level of spending, its distribution, or issues one party wants to include in spending bills and the other does not. All three are true at the moment.

Apparently, the stock market takes shutdowns in stride at this point. With the relatively low scope of the economic damage, this ironically makes a shutdown more likely because there are fewer repercussions that could follow a party into primaries and the general election.

CNN noted that during a shutdown, Social Security payments and U.S. debt payments can continue to go out, which means the big scares for Wall Street and retired consumers, who tend to vote in large numbers, aren’t something to face now.

The results could cause the Fed to hold off on modifying monetary policy. On one hand, if there is a slowdown, they might be reluctant to another interest rate increase for fear of tightening too much and causing a recession. Also, the economic reports they depend on would be put on hold because the staff at various departments would be on furlough.

That points to one of the problems CRE would face. There would be a cease in many forms of data investors, owners, operators, and developers depend on to make better decisions. Also, reaching officials who normally would be involved with assistance to commercial real estate companies would be unavailable. There might be delays in payments for office leases from federal agencies or other types of contracts.