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Political Stalemate Could Force Federal Shutdown: Week Ahead

The U.S. next Friday could find itself in its second shutdown in three years.

The White House on Thursday began notifying certain agencies to prepare for a possible government shutdown. That’s because the current funding bill sent from the House of Representatives to the Senate to finance the government for its next fiscal year is expected to be voted down. Thursday is the deadline to avoid a shutdown.

The political impasse on appropriations will serve to curtail certain government services and shut down non-essential services. The good news is that the shutdown is not the same as a default, despite the funding gap in the federal budget. The Department of Treasury has emergency funds it can access to make certain payments, such as for principle and interest.

The last shutdown, during then-President Trump’s administration, began in December 2018 and ended 35 days later with a border-security resolution.

There’s a chance that this time around, an extended shutdown could hurt October retail sales just as consumers get started with holiday shopping. With inventory levels pressured due to supply chain disruptions, and expected surcharges beginning Nov. 1, NRF chief economist Jack Kleinhenz believes “retailers are going to probably encourage spending to get started early, like [they] did last year in October.” But American consumers also might have gotten the hint on Aug. 24, when Vice President Kamala Harris delivered a foreign policy speech in Singapore in which she discussed shopping for Christmas presents early to get ahead of the global supply-chain crisis.

While Social Security recipients will still get their checks as the benefit has its own funding source, other government workers could feel the pinch.

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During the last shutdown, over 380,000 federal employees were furloughed, and another 420,000 were required to work without knowing when they would get paid. That cost the federal government an estimated $3 billion in backpay.

In the last shutdown, U.S. retail trade sales in January 2019 unexpectedly rose 1.9 percent from the same 2018 period. Building materials purchases and some discretionary spending drove the 0.2 percent increase from December 2018.

But this time could be different as Covid-19’s Delta variant continues to surge and there’s speculation that the 0.7 percent bump in August retail sales from July might not have occurred without the Child Tax Credit. Moreover, Thursday’s report from the Department of Labor shows that first-time jobless claims for the week ended Sept. 18 totaled 351,000, an increase of 16,000 from the week before and above the 320,000 estimate by Dow Jones. If first-time claims continue to rise in the weeks ahead, separate from federal employee furloughs, retail sales could end up under pressure.