Legislation to fund much of the US government appears to be in jeopardy this week, with another partial government shutdown likely to strike at midnight on Friday.
But the impact of a possible stoppage could be felt differently in the economic sector this time. Funding for sectors such as the Commerce Department (which releases some economic data) and the Agriculture Department (which administers food benefits) is not set to be affected, however, no matter what happens next week.
Budgets for other key departments — from the Labor Department (which releases the most closely watched economic data) to government agencies involved in keeping America’s airport operations afloat — sit amid what could be a hot week on Capitol Hill.
Ongoing talks to end the shutdown stalled over the weekend after federal agents shot and killed a U.S. citizen during an ongoing protest in Minneapolis. According to multiple videos of the incident, Alex Pretty, the man was disarmed by agents before being shot.
The shooting quickly reignited tensions after another deadly shooting there earlier this month. Senate Democrats vowed to block a funding bill on the docket this week that would, among other things, fund the Department of Homeland Security (DHS).
“Senate Democrats will not allow the current DHS funding bill to move forward,” Senate Democratic Leader Chuck Schumer said in a statement, adding that the offices of Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP), which are part of the larger Department of Homeland Security, need “transformation.”
He was joined by prominent Democrats who last worked to end the shutdown. In fact, the party seems united in opposing any DHS funding for now. Any funding legislation needs 60 votes to advance, which means a coalition of Democrats could block it.
Schumer has called for passage of five other funding bills — but both partisan and logistical concerns will make that difficult this week.
In any case, with only six funding bills on the issue, a shutdown Friday would have more limited economic effects than last fall’s shutdown.
There are 12 annual appropriations bills needed to fully fund the U.S. government, and six have already been approved by the president.
The key question, as Henrietta Trez of Ved Partners put it in a note, is “will all six remaining appropriations bills, which cover about 78% of the federal government, or just the Department of Homeland Security see a funding shortfall on Friday.”
The last government shutdown covered all 12 sectors of the economy and lasted a record 43 days.
The government action most closely watched by markets – economic data – will likely be affected again but will fluctuate differently.
One bill at stake would be funding the Labor Department, meaning a shutdown could once again delay or cancel key economic data such as the monthly jobs report and the Consumer Price Index (CPI).
But funding for the Commerce Department has already been approved, meaning the agency’s Bureau of Economic Analysis is set to keep its doors open. The BEA provides content such as gross domestic product readings and the personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred gauge of inflation.
No formal guidance has been provided on how the shutdown might affect the Commerce Department’s inflation data, but these two closely watched inflation gauges (CPI and PCE) sometimes rely on the same data. As the BEA Summary of its Sourcing Methods notes, some PCE calculations rely on CPI results as well as other sources.
A key question for the Department of Labor data is the length of any potential shutdown.
“We are currently expecting a very short shutdown that will likely impact the timing of the payroll release (at most) next week, but not the integrity of data collection for any major series,” Wolff Research’s Tobin Marcus wrote to clients Monday morning.
Stephen Juneau, senior U.S. economist at BofA Securities, told Yahoo Finance that the potential impacts could be modest, but he said he was watching the data implications closely.
“We are still recovering some of this lost data” from the latest shutdown, he said. “I think it’s going to create a lot of disruption for the market, but also for economists, for the Fed, for policymakers.”
Air travelers may feel some pain again if the shutdown goes ahead.
The Transportation Security Administration (TSA) is part of the Department of Homeland Security, meaning it’s been under a lot of debate this week.
The US Department of Transportation, meanwhile, oversees air traffic controllers as part of the Federal Aviation Administration (FAA). Funding for that group is also up for debate as part of this week’s Capitol Hill package.
Recent history has seen TSA and air traffic controllers required to report to work during shutdowns, with their pay deferred.
Last year, when air travel restrictions were imposed because there were not enough air traffic controllers at the towers, it caused significant disruptions.
Funding for the Pentagon and the State Department, as well as other major agencies such as the U.S. departments of Health and Human Services and Education, are also up for debate this week.
It remains to be seen whether these five funding bills can be separated from DHS funding and enacted before Friday’s deadline, but Senate Republicans have so far indicated they are looking to pass the entire package.
But even if Senate Republicans are discouraged, the logistical challenges may be greater, with the House of Representatives not scheduled to be in session this week.
The House is currently scheduled to return to Washington on February 2 – after the partial shutdown begins.
Access to food benefits through the Supplemental Nutrition Assistance Program (SNAP) — formerly known as food stamps — was a major concern for poor Americans during the last shutdown. But the deal that ended that stoppage extended SNAP funding through September, so those benefits will continue to flow this week anyway.
The situation is similar for the USDA’s Special Supplemental Nutrition Program for Women, Infants and Children (WIC), whose funding is secured through the end of the fiscal year.
Another quirk to look out for is the Internal Revenue Service, which is under the umbrella of the Treasury Department.
Although the official tax filing season begins on Monday, there remains an air of funding this week.
“We fully expect that they will once again bend the rules to process tax returns if necessary, which means delays (if any) will be minor,” Marcus wrote.
Ben Verskull is the Washington correspondent for Yahoo Finance.
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