Dollars and Sense: Shutdown not the only force pushing the markets

Shutdown? This is the first week of a government shutdown. Did we experience economic disaster? The straight answer is: No, we did not. U.S. stocks did drop on Monday. But that was the last day of September and the last day of the third quarter. It’s not unusual to see a bit of a selloff on the last day as traders re-balance portfolios and lock in gains. On Tuesday, the markets actually rose a bit. The cost of gold, a safe harbor in times of crisis, also fell on Tuesday, indicating the markets weren’t that scared.

A non-event? So am I saying that the shutdown is, economically, a non-event? Not exactly. But a temporary shutdown is not as troublesome as the possibility of the United States defaulting on its debt obligations. That said, if the shutdown drags on, that could have a measurable impact on gross domestic product for the rest of the year. How much, no one really knows. I’ve heard estimates from nothing to a quarter percent hit on the GDP this year, depending on how long the shutdown lasts.

Market jitters. But for now, the markets are not liking what they see. Stocks moved down on Wednesday and Thursday, but—again—there were reasons other than the shutdown. On Wednesday, payroll processor ADP released a tepid jobs report, saying the economy had generated a mediocre 166,000 jobs in September. Also dragging on the markets: The Mortgage Bankers Association said mortgage applications fell last week. I should note, however, one bit of good news. Initial jobless claims still remain low, at around 305,000. That’s a number that most analysts say means the economy is generating new jobs.

Data clog. One interesting consequence of the shutdown is the halt in government data. We aren’t getting any of the regular flow of reports that come out every day from the government. As you’ve heard me and many others say, “The markets hate uncertainty.” This lack of data has increased caution among traders, and that posture likely will continue, at least until they get data they have confidence in. In the coming week, for example, we are supposed to get trade balance numbers and wholesale inventories in two separate reports from the Commerce Department. Those are just two of about two dozen reports that should come out next week but likely won’t if the shutdown continues. The good news is that third-quarter corporate earnings reports should start coming out by the end of the week. Those numbers tend to steal the headlines from the economic news, and they are dependent not one bit on the government.