The 16-day partial government shutdown caused furloughs for hundreds of thousands of workers. But the damage didn't end there. Private businesses reliant on the government lost money that likely won't be recovered. We should know more the impact when the government releases its October jobs report Nov. 8.
In this podcast, economist John Canally of LPL Financial says the result was that the final quarter of the year got off to a bad start. There's no way to know what Congress and President Barack Obama will do in the new year as two new deadlines loom.
Also, Bankrate's Doug Whiteman reports on an unintended benefit of Obamacare.
Job market frozen during government shutdown?
With one crisis behind and the threat of another looming, what can investors, savers and borrowers expect in the coming months?
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Mark Hamrick: From Bankrate.com this is Your Money this Week. We connect the dots between what's happening in the world and your wallet. I'm Mark Hamrick reporting from Washington.
Even before the partial government shutdown frustratingly slow jobs creation continued to cause strains on the economy and for the millions of Americans affected. Did the job market hit a brick wall while hundreds of thousands of workers were furloughed? We'll speak with economy John Canally about the implications for investors, savers and borrowers. And Bankrate's Doug Whiteman checks in with an unexpected benefit from the Affordable Care Act, also known as Obamacare.
First up, a look at the post-government shutdown economy. We'll take some time to know the true economic damage from the political stalemate that resulted in a 16-day partial shutdown of the U.S. government. As the crisis was defused both sides agreed to fund the government through mid-January and put off the debt limit until early February. Where does that leave an already sputtering economic recovery? For some answers on that we spoke with John Canally, economist and investment strategist for LPL Financial.
John Canally: Well, it's expanding but at a slower rate and that's in the manufacturing sector. So that still looks OK. But where I think the issue might be in a job market I mean it's tough to tell. These jobless _____ [00:01:36] data get distorted a lot because of the government shutdown, because of the issues in California. But when you cut through all the noise it does look like the economy will have struggled to create any jobs in October. So you might not be surprised to see an October jobs report that will get here on Nov. 8 that's right around zero. That's no net job growth. That might come as a shock to people, it might worry people that we're headed to another recession but I think we can quickly dismiss that and blame it on the government shutdown, and we should reaccelerate. But that will be a near-term concern here just in the next few weeks when we get that October jobs report. But other than that I think we're - the third quarter looks like about a 2 percent quarter, the fourth quarter is off an awful start, and I think we'll be happy to get 2 percent from the corner and then maybe we can finally reaccelerate as 2014 starts.
Mark Hamrick: So John, we know that obviously the government shutdown had a number of very negative impacts. Why is it that private sector jobs creation would have been effected in October?
John Canally: Yeah, I mean there's certainly going to be a big impact from the public sector, of course, with nearly a million government workers furloughed. But then if you think about the knock-on effects of that, so for example if you were in the private sector and ran a campground outside of one of the national parks you'd pretty much have to lay everyone off because no one was able to go into the Grand Canyon or into one of the other great national parks that we have because they were closed due to the shutdown. So that certainly would have impacted the economy. The same thing you could say for a restaurant or a diner near a large government defense contractor that had to furlough workers because of the shutdown. And then add that to the fact that consumer confidence plummeted during the shutdown. It was a sharp and steep drop in the consumer confidence. And that likely curtailed business confidence, which in turn curtailed hiring. So if you add all that up it looks like what could be a pretty messy October, or at least early October for the job market. Now, of course, the key is that the government collects this data based on the first couple weeks of October, which is really during the shutdown. So my guess is if you get a jobs report for the second half of October it would look a lot better than the jobs report for the first half of October. So that's why we're kind of counting on these claims data that give us a clearer picture, but of course we can't get a clear picture there because of the government shutdown. So I think it may be a couple of months here before we actually get a clean reading on the labor market and the economy, probably not until December, unfortunately.
Mark Hamrick: So John, a takeaway from all this is we know that the Federal Reserve has been engaged in extraordinary measures aimed at boosting growth and trying to put some improvement in the job market in play. Earlier this year the Fed had - Chairman Bernanke had indicated that they might begin to withdraw some of those extraordinary measures and now that sort of looks like the Fed isn't going to change anything for a while, right?
John Canally: And they're very unlikely to begin tapering because they just don’t have the entirety. They just don't the data, that they can't make a reasoned judgment on the health of the economy, and the data that we do have isn't great. And so they're probably going to pass in October. And then that leads us to the December FMC meeting and that could be right on the precipice of another battle over the government shutdown, which could happen again on Jan.15, and then the debt ceiling on Feb. 7. And so the Fed, therefore, is highly unlikely to begin tapering in December, although it's not possible if we get a really good run of economic data here for the next couple months they could break down tapering. So that then pushes the Fed off into early 2014 when they might taper. So that tells you that the Fed is probably going to still be purchasing mortgage-backed securities and Treasuries a year from now because it'll probably take them a year to slow down the purchases so they're at zero. So the Fed is adding to its balance sheet. That's good news for the economy. It's also good news for the stock market because each time the Fed is adding to its balance sheet by making quantitative easing they're essentially cutting rates. And so that usually is a plus for a risk asset. So I think we've - the market has pushed off the first Fed rate hike till I think late 2015. And that tells you that that's going to provide that extra boost to the economy as well. So I think the Fed is probably comfortable right now with that late 2015, early 2016 start date. They were I think a little concerned about all the paper talk that drove that first rate hike much earlier. But I think now the Fed's comfortable with it. I think if we did have clarity on all the economic data they might consider tapering in December but I just don't think we're going to have that clarity.
Mark Hamrick: So John you used the phrase risk assets there. I'm guessing what you mean by that really is that the Fed's behavior continues to be positive for the stock market.
John Canally: It does, yes. When the Fed is adding to its balance sheet, when it's taking cash and putting it on banks' balance sheets that's generally been a positive for the equity market. It should help emerging markets as well and should keep the bond market relatively calm. The bond market kind of had a sort of a spring slide there when we - when the market was concerned about the Fed tapering. So we thought - we drove the 10-year Treasury yield from just under 2.25 percent almost up to 3 percent. Now we're back to 2.5 percent on the 10-year. The Fed's probably comfortable there with the 10-year yield at about 2.5 percent. That's good news if you're going to go out and buy a car or going to go out and try to get a mortgage. That should help keep those consumer rates lower for longer, I think, which is good news for the economy, as well.
Mark Hamrick: Okay, John. Well a lot there, but obviously these are all things that consumers and borrowers, among others, need to know. We appreciate you helping us break it down today.
John Canally: Anytime Mark...
Mark Hamrick: John Canally, investment strategist and economist with LPL Financial. He spoke with us from Minneapolis.
Next up, Bankrate's Doug Whiteman. He tells us that lost amid the heated political squabbling involving the Affordable Care Act is a surprising benefit.
Doug Whiteman: Debate has been raging about whether health care reform will lead some employers to cut jobs. But what about new job opportunities as more people sign up for health insurance? Experts who follow jobs and hiring say it's too early to spot any broad trends related to the Affordable Care Act, but an increase in demand for lawyers has been seen owing to how complicated the 900-page law is. Obviously, there may be opportunities in insurance sales. For example, Blue Cross and Blue Shield of North Carolina is opening and staffing its first-ever retail stores to help enroll new customers. Companies that operate in customer service call centers have been adding workers as they land contracts to assist people using the Obamacare online insurance marketplaces, or exchanges. And there are new opportunities for management consultants who can help companies and government agencies meet the law's requirements. For more on fields where Obamacare is creating jobs visit Bankrate.com. I'm Doug Whiteman.
Mark Hamrick: Finally our look at this week in business history. One of the darkest periods in the nation's history began Oct. 28, 1929, when the stock market lost 13 percent of its value. The decline was followed by an additional 12 percent drop on Oct. 29, known as Black Tuesday. That was only the start of a long-term decline. And of course, the Great Depression would follow.
You've been listening to Your Money This Week. Our thanks to this week's guest John Canally. If you enjoyed the podcast please check us out on iTunes and rate and subscribe to the program. And we're hoping that you can help us to get the word out. Check out our other podcasts special report with breaking news and special features. For more on this and other personal finance issues visit Bankrate.com and you can follow us on Twitter @Bankrate. Thanks to producer Lucas Wysocki for his work in the studio. I'm Mark Hamrick, from all of us here at Bankrate, here's hoping you have a great week.