Leading economic figures are issuing stark warnings that the month-long government shutdown is beginning to “materially damage” the U.S. economy.
Moynihan Cautions Of Economic ‘Malaise’ Amid Prolonged Shutdown
Bank of America Corp. (NYSE:BAC) CEO Brian Moynihan, in a conversation with Fortune, cautioned that the prolonged standoff risks causing economic “malaise,” while Moody's Analytics chief economist Mark Zandi stated a recession is “more likely than not” if the impasse lasts through the end of the year.
The initial consensus that the shutdown’s impact would be mild is “fading.” Moynihan explained that the shutdown is “going to slow down the economy” because essential government functions have “ground to a halt.”
He noted that activities requiring regulatory sign-off, such as SEC approvals for IPOs and government contracting, are frozen, “detrimentally” impacting private sector businesses.
Moynihan also pointed to the direct consumer impact, noting BofA provides services like “loan forbearance” to its 250,000 to 300,000 government employee customers. The “big issues will come,” he warned, if this uncertainty causes consumers to “slow down their spending” or forces employers to “adjust their headcount.”
Washington, DC Is ‘Already Struggling’ Due To Shutdown
Zandi, in posts on X, echoed the concern, stating that economic fallout, previously “mostly felt” by the “struggling broader Washington, DC economy,” is “unlikely to be the case for much longer.”
He warned that as unpaid government workers “pull back on their spending” and contractors lay off staff, the “hit to the economy will mount.”
Zandi identified a critical inflection point, warning that if the shutdown “extends into the Christmas buying season,” it will hurt retailers and cause financial markets to “magnify the economic damage.”
Based on “simulations of our macro model,” Zandi’s analysis concluded that a shutdown lasting through the year’s end makes a recession “more likely than not.”
Stock Market Remains Largely Unfazed With Shutdown
Despite these dire macroeconomic forecasts, the stock market appears unfazed. In an analysis posted on X, Ryan Detrick of Carson Research argued that while “Shutdowns Add Drama… Stocks Don’t Really Care.”
He observed that the S&P 500 was “up nearly 3%” during the current 30-day shutdown, which he noted is “pretty standard.” Detrick’s historical data shows that while the market’s average return during shutdowns is nearly flat (0.2%), the S&P 500 has averaged a 12.7% gain in the 12 months after they end.
On Thursday, the SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, ended lower. The SPY was down 1.10% at $679.83, while the QQQ declined 1.53% to $626.05, according to Benzinga Pro data.
On Friday, the futures of the S&P 500, Dow Jones, and Nasdaq 100 indices were higher.
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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.
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