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October 02, 2013 at 09:51 PM
U.S. households are getting wealthier and earning more, but the government shutdown could put those gains in jeopardy.
While last week’s economic data shed new light on the growing net worth of U.S. families along with a rise in personal income, analysts fear that brinkmanship in Washington over the debt ceiling and Obamacare threatens that growth.
Before Congress failed to pass a measure to fund the government, shutting down nonessential operations Tuesday morning, several analysts weighed in on how such a closure would affect Americans’ wealth.
“A shutdown would slow the expansion because output lost when workers are furloughed subtracts from gross domestic product,” wrote Jeanna Smialek and Ian Katz in a Bloomberg analysis on Friday. “The combined prospect of a budget standoff between the White House and Congress and haggling over the debt ceiling could have a bigger impact on the economy as businesses hold off on investment and households delay spending.”
Frank Fantozzi, CEO of Planned Financial Services, a Cleveland, Ohio-based firm affiliated with LPL, agreed that U.S. GDP could take a hit if the government shuts down.
“If the government stops spending money, it will bring down GDP, and this is a concern that the Federal Reserve has raised,” Fantozzi said in a phone interview on Friday. “One of the reasons the Fed has cited is that because GDP is 2% or a little less, we’re approaching a stall rate. If the government shuts down and they can’t put money into the system, the fear is that paltry GDP rate will go to nothing and the economy will stall.
“Theoretically that can happen, though I have my reservations that we’ll see a government shutdown that puts us over the cliff.”
Shutdown Casts Gloom on Sunny Data
The U.S. Bureau of Economic Analysis reported Friday that personal income in August increased $57.2 billion, or 0.4%, as personal consumption expenditures increased $34.5 billion, or 0.3%. Private wages and salaries, meanwhile, increased $28.5 billion in August.
Further, on Wednesday, the Federal Reserve reported that household net worth was $74.8 trillion at the end of the second quarter, about $1.3 trillion more than at the end of the first quarter — putting it at the highest level since the Fed began keeping records in 1945.
