US government shutdown: Deadlock extends to next week- How will it affect your household finances

The federal government shutdown has entered its third day, and possibly the deadlock can extend to next week.

Depending on the duration of the shutdown, it could have far-reaching implications for household finances . Economists have indicated that repercussions might range from delayed paychecks and layoffs for federal workers to broader effects on other Americans, including disrupted travel plans and challenges in obtaining mortgages. Enhanced subsidies for the Affordable Care Act (ACA) — also known as Obamacare — which have made health plans more affordable for millions of enrollees in recent years, are also indirectly at stake.

What’s at stake during a government shutdown?

A shutdown lasting less than two weeks is unlikely to have a significant or lasting impact on the U.S. economy or household finances, though negative effects increase with time, said Mark Zandi, chief economist at Moody’s. Most immediately, federal workers deemed nonessential are furloughed and would not be paid during a shutdown, though they would receive paychecks retroactively, Zandi explained.

Government contractors — including companies that provide cafeteria services or strategic advice to the govt — would begin to experience financial strain after three to four weeks without payment, Zandi noted. Unlike federal employees, federal contractors have historically not received back pay, according to the Committee for a Responsible Federal Budget (CRFB). This loss of income could place financial stress on households, especially in the D.C. area, that lack reserve funds to cover missed paychecks. However, if the shutdown is brief, the impact should be minimal, according to Zandi and other economists.

“The direct costs of shutdowns are usually negligible, with most only lasting a few days,” Ryan of Capital Economics wrote. Many shutdowns have primarily occurred over weekends, reducing the overall impact, according to the CRFB.

During the 2018-19 shutdown, approximately 800,000 federal employees were either furloughed or worked without pay, resulting in lost income of about Rs 5,800 crore (approximately 0.3% of gross domestic product, in annualised terms), Ryan reported.

This episode was a partial shutdown, as Congress had passed five out of twelve appropriations bills before the deadline, Timmerman noted.

The last full shutdown, similar to the current situation, occurred in 2013 and lasted 16 days, furloughing about 850,000 workers, according to the CRFB. The Congressional Budget Office estimates that around 750,000 federal workers could be furloughed each day of the current shutdown.

How does a shutdown affect consumers?

Furloughing hundreds of thousands of federal workers has broader impacts: certain services tied to nutrition assistance programmes, housing assistance, Social Security, Medicaid, and veteran claims may be disrupted.

During a shutdown, the federal flood insurance programme immediately closes to new policies until a spending deal is reached, according to Jaret Seiberg, financial services policy analyst at TD Cowen.

“This means no mortgages which require federal flood insurance will be originated,” Seiberg wrote in a note on Sept. 26. Financial firms likely accelerated mortgage closings before the Sept. 30 deadline, mitigating the impact. However, extended shutdowns “will block mortgages from being made,” he added.