Are you ready for another U.S. Government shutdown?

Judging by how well the 2013 government shutdown polled (81% of Americans were against it), you’re probably not. In fact, a recent Politico/Morning Consult poll shows that 65% of American voters oppose a shutdown.1 Unfortunately, it’s not clear whether the public’s aversion to government shutdowns will be enough to prevent another one from occurring.

Congress must pass legislation – and President Trump must sign it – by April 28 to appropriate money to fund government operations and agencies. That may be easier said than done.

The House of Representatives could simply pass a continuing resolution to fund the government at current levels, but that might not pass muster with the conservative House Freedom Caucus. In addition, any funding bill requires 60 votes to pass in the Senate. Inclusion of budget priorities favored by House Republicans and President Trump – increased defense spending, money to build a wall along the U.S. border with Mexico, cuts in spending on social programs – that Democrats find unacceptable may cause the bill to die in the Senate. A failure to pass an appropriations bill will result in an official government shutdown on April 29, which is, coincidentally, President Trump’s 100th day in office.

No Impact on Essential Services

End times are here, right? Wrong.

  • U.S. Government shutdowns are not without precedent. The government has shut down 13 times since modern Congressional budgeting began in 1976, with shutdowns lasting an average of 5.08 days. The longest shutdown lasted 21 days, during President Clinton’s first term. The most recent shutdown, in September 2013, lasted 16 days.
  • Essential government functions will continue to operate on April 29 and beyond. These include, but are not limited to, air-traffic control, border patrol, federal prisons, the power grid, mail delivery, disaster relief, food-safety inspections, military, and tax collection. Seniors will continue to receive their Social Security and Medicare benefits. Veteran benefits, unemployment benefits, and food stamps will be unaffected. Essential workers will stay on the job and receive retroactive pay when Congress eventually agrees on a bill that funds the government.
  • Non-essential federal workers will be furloughed and non-essential government activities will cease. For example (to name a select few), the Justice Department will suspend civil cases; NASA will furlough most of its employees but continue to provide support to the International Space Station; the National Institutes of Health will continue clinical trials but no new trials will be started; the National Zoo will be closed (the animals will be fed); and national parks will be closed. Cue John Candy in National Lampoon’s Vacation: “Sorry folks, the park’s closed. The moose out front should have told ya’.” Unfortunately a shutdown will be no laughing matter for the roughly 800,000 non-essential workers who will be furloughed and the 1.3 million essential workers who will receive IOUs in lieu of payment.

Congress: Less Popular than Head Lice

How long a government shutdown would last is anyone’s guess. Government shutdowns typically end when one or both political parties can no longer withstand the public’s ire. In 2013, Congress’ approval rating during the government shutdown fell to a record-low 9%, ranking below head lice, root canals, and the Canadian rock band Nickleback (in case you were wondering, Nickelback was deemed a “fake and calculating hit-focused band”).

Jimmy Fallon famously quipped at the time, “It’s gotten too bad…now the approval ratings of Congress hit a record low of just 5%.2 There are a lot of pressing questions, namely, who’s in the five percent that still approves Congress?” (Exhibit 1).

Exhibit 1: Congress Job Approval Rating -- OppenheimerFunds

Soon after, both houses of Congress approved a proposal to fund the government and President Obama signed it into law. It is estimated that the U.S. economy lost 0.6% of 2013 projected annualized GDP growth equal to $23 billion.3

Markets Don’t Mind Government Shutdowns

For investors, the good news is that government shutdowns historically have had limited impact on the stock market. In fact, equity market returns have been positive in the 12 months following the beginning of every modern-era government shutdown, with the S&P 500 Index posting an average one-year return of 17.99%, including a 19.72% gain in the year after the 2013 shutdown (Exhibit 2)!

Exhibit 2: S&P Index Total Return -- OppenheimerFunds

Ready or not, a government shutdown may soon be upon us. Prepare for a bunch of jokes that sound like this one that Conan O’Brien delivered in 2013, “Our government may be shutting down in a few hours. So, folks, get ready for absolutely no noticeable difference.”

However, the nation did notice and demanded that Congress act. Let’s hope cooler heads prevail and the U.S. averts a government shutdown. If it does occur, here’s hoping for a prompt resolution.

Follow @OppFunds for more news and commentary.

1 Source: Politico.com, “Poll: Voters recoil from government shutdown,” 4/5/2017.

2 The Congressional Approval Rating fell to 5% in the Associated Press poll. It never got below 9% in the Gallup poll.

3 Source: Standard & Poor’s.