01/16/2019 | by

As we suspected in our earlier commentary on the government shutdown, the closure has extended beyond a few days and is now the longest such shutdown on record. In terms of information about the economy, the retail sales report for December and business inventories report for November were early casualties, as these releases planned for Jan 16th were delayed due to the Census Bureau being shuttered by the lack of funding.

This leaves investors and business leaders in the dark about how strong or weak overall holiday sales were last month. Similarly, the missing data on business inventories leaves us without information on business investment, a major component of GDP. This lack of data will heighten the uncertainty about economic fundamentals at a time when concerns were already rising.

The White House estimates the direct impact of the shutdown, from lost output by government workers and contractors, to reduce quarterly GDP growth by 0.13 percentage points for each week the closure continues. This suggests that first quarter GDP growth will be one-quarter percentage point lower than it would have been otherwise. Of course, these losses will mount should the impasse continue.

A potentially larger risk, however, would be if businesses and consumers cut back their spending and investment plans in light of rising uncertainty about future business conditions. To be sure, we haven’t seen any actual reports indicating that such cutbacks are taking place, and we still expect the economy to continue to grow this year. Growing uncertainty about the search for a solution to the budget standoff and a lack of information about economic activity, however, remain significant obstacles for the markets.

Get Nareit Market Commentary blog posts delivered straight to your inbox.