Shutdown clouds the near-term outlook

The Federal government shutdown has made it harder than usual to judge how the economy is performing, but the data that have been released have been fairly upbeat. The surge in payroll employment and manufacturing output in December shows that the economy finished last year on a strong note, and we estimate that fourth-quarter GDP growth was close to 3% annualised. Although the ISM activity indices fell quite sharply last month, they still suggest the near-term outlook is fairly bright. That said, the shutdown is already causing more widespread disruption beyond delays to data releases and it appears to have hit consumer confidence. If it lasts much longer, it could end up having a significant negative impact on first-quarter GDP. That wouldn’t in itself be a serious concern, however, as most of the hit to activity would be reversed once the government reopened.