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Government Shutdown Adds to Uncertainty
David Crowe / NAHB / October 3, 2013
Recent data concerning consumer and builder confidence suggest that at the end of the summer a pause occurred with respect to economic improvement. Adding to this is the uncertainty associated with the shutdown of the federal government. Besides the direct impact from lost or delayed government services, the shutdown is also a warning concerning the impending political debate regarding the debt ceiling, an issue which could have significantly larger economic impacts, including higher interest rates.
Direct impacts from the ongoing shutdown include possible delays in FHA-insured single-family loan approvals, FHA multifamily insured financing, rural housing loans, and E-Verify for hiring. Additionally, with the closure of the IRS, it may be difficult for prospective homebuyers to acquire lender required forms to obtain mortgages. A two-week government shutdown is unlikely to have a large impact on housing and the economy, but a shutdown that spans a month or more could be quite costly.
Loss of economic data, including this week’s BLS jobs report, is another drawback caused by the shutdown. The loss makes it more difficult for the Federal Reserve to conduct monetary policy at this critical moment.
Many analysts expected the policy of quantitative easing, which involves the purchase by the central bank of government bonds and mortgage-backed securities, to perhaps taper to an end sometime this year. However, at the September meeting of the Federal Open Market Committee, the Fed decided not to taper at this time. Economic growth, 2.5% for the second quarter, remains modest at best, and job creation continues to be disappointing compared to prior recessions. The lack of data from the BEA and BLS will thus make the Fed’s job harder.