Do Government Shutdowns Lead to Recessions
Hello Friends,
Brian Wesbury, Chief Economist for First Trust, recently came out with an article looking at the relationship between government shutdowns and recessions. I must admit even I was a little surprised by his findings. Here are my key takeaways:
“History shows no relationship between federal shutdowns and the performance of the economy.
We had two shutdowns in late 1995 and early 1996, and saw no recession either time. There was a shutdown in 2013, no recession. There was a brief shutdown early in 2018, no recession. The most recent shutdown was the longest, thirty-five days from December 2018 through January 2019. You guessed it, no recession. The last time a shutdown coincided with a recession was in October 1990. That was only a four-day shutdown, but money was already tight and a recession was inevitable either way.
Here's another way to think about it: In the last forty years, the government has been shut for 91 days. Among those days, the US was in recession for four days and not in recession for eighty-seven. By contrast in the past forty years the US has been in recession about 8% of the time. That means the economy was more likely to be growing when the federal government was shut than when it was open!
This doesn’t mean a recession can’t start in the fourth quarter. But if we do get a recession it’ll be a coincidence, due to the lagged effects of the tighter monetary policy of the last year, not a shutdown itself.”
I would urge you to please keep the above facts in mind as the rhetoric ratchets up from our politicians, and in all of financial journalism, on the catastrophic effects of a possible government shutdown.
It is political theater and as Warren Buffet says:
"If you mix your politics with your investment decisions, you're making a big mistake".
As I have stated numerous times in these notes, the economy cannot be forecast and the market cannot be timed and besides, the two rarely move in tandem. We are long-term, multi-generational investors with beautifully crafted plans designed to meet our most cherished long-term goals and as long as those goals haven't changed, we best not alter our investment plan based on the current "noise". History shows that staying the course has always been the right decision in the long run.
I hope you’ve found this note informational and thought provoking. As always it is a pleasure and an honor to serve you. If you would like to discuss any of this information further, please give me a call. Have a great day and talk with you soon!
Best Wishes and Regards,
David R Henderson
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