Government shutdown becomes longest in history, and things are starting to get messy

Key Concepts

• Government Shutdown
• Partial Appropriations Bill
• Obamacare Subsidies
• FAA Order
• SNAP Benefits
• Consumer Sentiment
• Jobless Claims
• Labor Market
• GDP
• AIPA Tariffs
• Supreme Court
• Presidential Discretion
• International Economic Emergency

Government Gridlock and Shutdown Stalemate

The transcript details an ongoing government shutdown, described as the longest in US history, with no immediate end in sight. Senators are remaining in Washington for weekend talks, indicating a shift towards dialogue, though a deal remains elusive.

Proposed Solutions and Rejections

Several proposals were put forth and subsequently rejected:

• Senate Majority Leader John Thune's Plan: A partial appropriations bill to fund the government for a few months.
• Revised Plan: To pay government workers for a few months.
• Senate Minority Leader Chuck Schumer's Plan: To extend Obamacare subsidies for one year in exchange for reopening the government. This plan was "immediately kind of completely shot down" or "ran into trouble immediately."

Despite the rejections, Senate Majority Leader John Thune acknowledged Schumer's plan as a "sign of progress," suggesting that ongoing talks are expected to continue over the weekend, potentially with more votes. The expectation is for several more days of shutdown, with hopes for more substantive talks the following week.

Economic Effects and Implications of the Shutdown

The shutdown is having tangible economic consequences, particularly in the following areas:

Air Travel Disruptions

• Flight Cancellations: Over 1,400 flight cancellations were reported on a single day due to a recent FAA order.
• Reduced Air Traffic: The FAA order limits air traffic by 4% currently, with a projected 10% reduction next week. Transportation Secretary Sean Duffy indicated this could increase further.
• Travel Delays: Significant travel delays are anticipated, especially as Thanksgiving approaches, making air travel a primary concern.

Food Benefits Program (SNAP)

• Court Order for Full Benefits: A court order mandated the Trump administration to pay full SNAP benefits, countering a previous plan for partial payments.
• USDA Announcement: The USDA announced full issuances of SNAP benefits.
• Impact: This is considered good news for the one in eight Americans who rely on these benefits. However, the complexity of the program means it will take a few days for the full impact to be realized.

Overall Macroeconomic Effects

While airports are the most visible pressure point, the shutdown has broader macroeconomic effects. The transcript notes that the SNAP benefit situation will "take a few days to play out."

Public Opinion and Political Ramifications

Polling data indicates a shift in public blame for the shutdown:

• Republican Blame: Americans are blaming Republicans slightly more for the shutdown. This is contrary to Republican expectations, given that Democrats initiated the policy fight over healthcare.
• Democratic Gains: Recent election results are seen as a sign that Democrats are benefiting politically from their stance on healthcare, with wins reported across various states.
• Trump's Approval Rating: Trump's approval rating has seen a significant decline in recent months, influenced by factors beyond the shutdown, including affordability concerns (e.g., grocery prices). This could impact shutdown negotiations and other aspects of the Trump agenda.

Labor Market and Consumer Sentiment

The transcript also discusses the state of the US labor market and consumer confidence, particularly in the context of a "data-free employment Friday" due to the shutdown.

Labor Market Indicators

• Jobless Claims: State-level jobless claims have been steady week-to-week, but continuing claims are increasing significantly, suggesting difficulty for those who lose jobs to find new employment.
• Payroll Data: Private sector payroll data (ADP, Rellio) has been fluctuating around zero, not indicating a major crack in the labor market yet.
• Job Cuts: Announcements of job cuts from large companies like Amazon (white-collar positions) suggest that companies may be ending their "labor hoarding" practices and view labor supply as more readily available.

Consumer Confidence

• University of Michigan Data: The November University of Michigan consumer confidence reading fell to a near record low of 50.3.
• Shutdown's Impact: While some economists suggest taking this with a grain of salt due to the shutdown's drag, the transcript argues for greater concern. Spontaneous mentions of the shutdown in surveys relate to people not receiving necessary benefits or experiencing job losses.
• Deterioration in Middle-Income Confidence: A significant deterioration in confidence has been observed among middle-income earners, alongside lower-income groups. This suggests that two-thirds of the income distribution are feeling worse off, potentially leading to new lows in the consumer confidence index.

Economic Uncertainty and GDP Trajectory

• Data Delays: The shutdown is causing delays in economic data collection and reporting, adding to uncertainty. BLS officials have expressed concerns about the return of furloughed employees, potentially leading to data assembly delays even after the government reopens.
• Lost Time and Deadweight Loss: The economic impact is viewed as "lost time" and "deadweight loss," meaning that disrupted activities (e.g., canceled flights, government-funded consumption) are not fully recovered.
• GDP Projections: Heading into Q4, momentum was strong, but the shutdown is expected to significantly reduce GDP growth. Projections for Q4 are now in the "one or a zero handle" range, down from the 3+ percentage point quarter-over-quarter growth rates seen in Q2 and Q3. The exact impact depends on the shutdown's duration.

Supreme Court and AIPA Tariffs

The transcript touches upon the Supreme Court's consideration of the legality of AIPA tariffs.

Odds Markets and Expert Opinion

• Decreasing Odds of Success: Odds markets suggest a decreasing chance of success for the administration in this case.
• Non-Consensus View: The speaker expresses a non-consensus view, believing the Supreme Court is more likely to validate the tariffs.

Arguments for Validation

• Narrow Questions Presented: The court is focused on narrow questions regarding whether the AIPA statute authorizes tariffs and if Congress exceeded its authority by giving too much power to the president.
• Presidential Discretion: The court recognizes the president's broad constitutional discretion in dealing with international emergencies, citing Justice Robert Jackson's test from a 1952 case.
• Avoiding Disruption: The court is unlikely to disrupt the administration's response to an existing international economic emergency.
• Counterfactual Questions: Penetrating questions from justices are often counterfactuals and should not be taken literally as indicators of their final decision. The court is expected to look for ways to support the president.

Conclusion and Outlook

The government shutdown is characterized by a lack of clear resolution, with ongoing negotiations and rejections of proposed solutions. The economic impact is becoming increasingly apparent, particularly in air travel and consumer confidence. Public opinion appears to be shifting blame towards Republicans, while Democrats feel emboldened by recent election results. The labor market shows signs of strain, with increasing continuing jobless claims and potential shifts in corporate hiring practices. The Supreme Court's decision on AIPA tariffs is also a significant point of discussion, with a prediction of validation based on presidential discretion and the need to avoid disrupting international economic responses. The outlook suggests continued shutdown pressure until at least Thanksgiving, driven by political posturing and the practical pain experienced by the public.