The government’s partial shutdown will drag until at least next Thursday after the Senate adjourned on Saturday without taking action to end the funding lapse and reopen the federal government as both Republicans and Democrats dug in on their positions over funding for Trump’s proposed border wall while negotiators tried to find a potential solution.
No progress was made despite several gatherings on Capitol Hill, with Senate majority leaders Mitch McConnell saying the Senate would not be voting on the issue until at least Dec. 27. The Kentucky Senator said the body would hold a pro forma session on Monday, Dec. 24, then will reconvene after Christmas on Thursday, Dec. 27, and senators will be notified when a vote is called. That will put the focus on getting a deal before lawmakers return on Thursday.
Senators failed to reach a funding agreement as Trump demanded $5 billion for his proposed wall along the border with Mexico, and is unwilling to budge even as Democrats repeatedly refused. Then House Republicans dug in, declining to pass a bill to keep the government running into February after the president threatened to veto it Thursday.
Senate leaders and only a handful of lawmakers had gathered at the Capitol around noon on Saturday with modest hope of finding a way forward to end the shutdown, which began at 12:01 a.m. Saturday and is affecting nine department, or about a quarter of the federal government.
Vice President Pence also returned to the Capitol on Saturday and met with Senate Minority Leader Charles Schumer for a second time in two days. A spokesman for Schumer told The Hill that the Senate Democratic leader was meeting with Pence “at the White House’s request” and that Schumer expected to get a readout of Trump’s lunch with GOP lawmakers.
“The Vice President came in for a discussion and made an offer. Unfortunately, we’re still very far apart,” the spokesman added after the Schumer-Pence meeting.
Sen. Richard Shelby said Pence was at the Capitol to discuss a government funding offer with the Senate Democratic leader but that a deal on Saturday was “probably not probable.”
“Merry Christmas all of you,” Shelby told reporters after his own meeting with Pence when asked what the break means about the state of negotiations. “There’s no deal, there’s no deal. … 27th will be here, what? Thursday?” Shelby added that Republicans and Democrats weren’t “far apart,” but “we’re not together.”
Earlier, Trump took to Twitter on Saturday morning, threatening a “long stay” if he does not get the “Border Security” he’s demanding.
I am in the White House, working hard. News reports concerning the Shutdown and Syria are mostly FAKE. We are negotiating with the Democrats on desperately needed Border Security (Gangs, Drugs, Human Trafficking & more) but it could be a long stay. On Syria, we were originally…
— Donald J. Trump (@realDonaldTrump) December 22, 2018
In a joint statement, Schumer and House Minority Leader Nancy Pelosi said Trump “threw a temper tantrum and convinced House Republicans to push our nation into a destructive Trump shutdown in the middle of the holiday season.” They appeared prepared for the closure to last past Jan. 3, which is when Democrats will take control of the House and Pelosi will likely become speaker with Pelosi saying that no pact will be signed until Trump accepts a bipartisan deal; she added that Democrats will pass a spending bill when they take over in January.
“Democrats have offered Republicans multiple proposals to keep the government open, including one that already passed the Senate unanimously, and all of which include funding for strong, sensible, and effective border security — not the president’s ineffective and expensive wall,” Democrats said. “If President Trump and Republicans choose to continue this Trump Shutdown, the new House Democratic majority will swiftly pass legislation to re-open government in January.”
With neither side willing to budge, the shutdown will likely last well into the new year after a senior Trump administration official offered no signs of compromise. He told reporters on Saturday, “We continue to articulate our expectations of $5 billion for border security and physical barriers” according to CNBC.
A spokesman for Senate Minority Leader Chuck Schumer said his boss would be meeting with Vice President Mike Pence. He said Schumer “intends to remind the Vice President that any proposal with funding for the wall cannot pass the Senate.”
The political fight will affect hundreds of thousands of Americans, over Christmas and potentially into the new year. More than 420,000 federal workers are projected to work temporarily without pay. About another 380,000 government employees are expected to face furloughs.
Last week, Trump said he would be “proud” to shut down the government for border security. During a televised Oval Office fracas, he told Schumer: “I will take the mantle. I will be the one to shut it down. I’m not going to blame you for it.” Despite his earlier assurance that he would own the closures, Trump then blamed Democrats on Friday. In a video posted to Twitter late Friday night, he said “there’s nothing we can do” about the shutdown “because we need the Democrats to give us their votes.”
“The shutdown hopefully will not last long,” he said, reiterating his call for a “great barrier” in the form of “a wall or a slat fence or whatever you want to call it.”
Meanwhile, a senior administration official doubled down on Trump’s request for $5 billion in funding for “physical barriers” along the U.S.-Mexico border. The official told reporters during a call that they hoped the partial government closure would last only a “few days.”
In a memo to agencies Friday, Office of Management and Budget Director Mick Mulvaney echoed hopes for a brief shutdown and wrote that “agencies should now execute plans for an orderly shutdown due to the absence of appropriations.” He noted that “we are hopeful that this lapse in appropriations will be of short duration.”
Perhaps. Indeed, one of the reasons why this event is not being taken too seriously by the financial punditry, markets or much of the media, is that looking back not only have most government shutdowns been brief affairs, lasting less than 10 days – with the occasional outliers, such as the 21-day closure in 1995 and the 16-day halt in September 2013 – they have had little to no impact on either the market or the economy.
That said in this particular case, Trump already feels he has compromised by lifting the last government shutdown in January of 2018, when he conceded on the border wall. This time he has warned there will be no concessions. Which is why, with both sides dug in and unwilling to budge, the shut down could last well into January.
Indeed, as the Hill writes, “both sides spent much of Saturday blaming the other for the shutdown — the third in the past year — raising questions about how quickly lawmakers could reach a deal to end the funding lapse.”
The good news is that lawmakers have already funded the sprawling Defense and Health and Human Services departments, among others. The unfunded departments include The shutdown affects the departments of Agriculture, Commerce, Homeland Security, Housing and Urban Development, Justice, State, Transportation and Treasury, among others.
Quantifying the economic impact of the shutdown, Goldman on Saturday wrotes that the practical effects of a shutdown should be smaller than usual, as Congress has already passed spending bills accounting for roughly ¾ of discretionary spending (i.e., spending approved annually by Congress). From a headcount standpoint, the departments currently lacking funding account for a somewhat greater share of “nonexempt” employees that will be furloughed if the shutdown continues, but this still amounts to only 40% of the number of employees typically furloughed in a shutdown. As a result, Goldman expects the effect on real GDP would amount to a modest -0.07% per week of shutdown.
Goldman also notes that it is unclear how long the shutdown might last, and notes that it could be politically challenging for political leaders to leave Washington during the holiday period amidst a shutdown; this could provide motivation to reach a quick agreement. “If an agreement is not reached in the next couple of days, we would expect that it could last until at least January 3, when the new Congress—and Democratic majority House—is sworn in.”
For those worried about the impact of the shutdown on upcoming data releases, Goldman notes that during government shutdowns, federal agencies postpone economic data releases until after the government reopens, at which point staff take time to both prepare overdue releases and to collect data from the shutdown period. This year, a shutdown would have less of an effect on economic data releases than during the extended shutdowns of 1995-96 and 2013 because the Department of Labor, which publishes the monthly payrolls, weekly jobless claims, and CPI reports, will not close as a result of the shutdown, since its budget authority was already passed as part of the partially completed appropriations process discussed above. Most other major federal government data are published by the Department of Commerce, which would however close in the event of a shutdown. Federal Reserve releases such as regional manufacturing surveys, industrial production and consumer credit data, and the December FOMC minutes should be published as usual, since the Fed does not rely on congressional appropriations for funding. Private sector data will also be published as usual.
The full breakdown of which data releases will be affected by the shutdown is shown below.
Finally, as pertains to markets, Goldman does not expect the partial shutdown to have substantial effects on financial markets, as this particular shutdown is unrelated to the debt limit and has no implications for Treasury financing. That said, the confusion and disorder surrounding this week’s spending debate suggest fiscal deadlines in 2019—including the debt limit deadline, which will fall between August and October—could be more disruptive than they have been since the 2011-2013 period.
As a reminder, in early 2018, Congress suspended the debt limit until March 1, 2019. Once the debt limit is reinstated on March 2, the Treasury will have roughly $200bn in cash balance at its disposal, along with roughly $300bn in accounting maneuverers known as “extraordinary measures” that will provide additional capacity to finance government operations before the debt limit becomes a constraint. Based on budget projections, Goldman assumes that the Treasury will be able to continue borrowing under the debt limit until at least August, and possibly as long as October.
In other words, this government shutdown will likely have very little impact on the economy and markets. It may, however, embolden both sides to shutdown the government again some time in the fall, when the stakes will be far greater.