The Other Shutdown Effects
As the government shutdown hits its 40th day, which is now the longest federal shutdown in U.S. history, the high-level headlines are understandably around SNAP cuts and the job losses and furloughed income of hundreds of thousands of federal workers. People are experiencing real pain and uncertainty right now.
But the shutdown is impacting many other areas of American life, too, beyond the headlines. I keep seeing Facebook posts along the lines of, “My life hasn’t changed at all with the government being shut down — maybe it should just stay closed.” I thought today I would share a few things that I am seeing in my role as a banker and as a general observer of the economy of how this prolonged shutdown is, indeed, affecting people and, with it, the economy as a whole.
Home Purchases
A friend of mine is getting married next year, and he and his fiancée are about to close on the acquisition of their first home. That is a stressful situation in and of itself, and it is made all the more complicated by the fact that their home loan is being done through a USDA program to support rural development. The loan has been approved, the appraisal and inspection on the home are both done, the title work is just about wrapped up, and both buyers and sellers are ready to close. But there is just one problem: nothing can happen until the government opens back up and processes the loan. This young couple should be celebrating Thanksgiving in their new home. The sellers probably have their own plans that are now being held up. But at this point, it feels like they will be lucky to close by Christmas. Title companies that process these transactions have indicated that it may take government agencies like the USDA a good bit of extra time to process the backlog once things re-open. I have heard everything from a few days to a few months.
Home Sales
I have also already experienced issues with bank customers trying to sell a property — the opposite side of the coin of the buyers’ scenario noted above. Just this past week, a customer was trying to sell a rural property here in Maine, and the transaction could not go through because they still had a balance on a USDA loan on the property that was used when they originally acquired it. The remaining balance is far less than the proceeds of the sale. In a normal transaction, the USDA note would just get paid off by the title company as they execute the transaction, holding back that portion of the proceeds from the seller. But in this case, the transaction is frozen until an accurate payoff can be obtained and the note can be discharged. Without anyone working in the USDA office to provide that information, everyone is stuck.
Small Business Loans
Borrowers and their banks often partner on small business loans with the Small Business Administration (SBA) and other federal agencies. The SBA helps support lending that might not otherwise happen, including for start-ups, for borrowers without a long credit history, or for loans that have little to no collateral supporting them. With the government shut down, these types of SBA loans are not happening. The SBA has estimated that $170 million per day of financing is not going through right now. This limitation is restricting the ability of many small businesses to open or expand.
Data
This is kind of a niche concern personal to me as your humble author of The Sunday Morning Post, but it actually has much larger implications for the economy and key decision makers: with the shutdown, the usual sources of data gathering and analysis are closed. The monthly jobs report from the Bureau of Labor Statistics, the Consumer Price Index (i.e. the inflation report), home and bank data, countless other pieces of critical information — it’s all going uncollected and unanalyzed right now. That has policymakers including those at the Federal Reserve essentially flying blind at a critical moment. With so much up in the air and so much political turbulence around interest rates, markets, and in various other corners of the economy, the lack of data is not only frustrating, but could contribute to either delays in movement on interest rates or actual errors in decision making.
What Comes Next
It’s hard to read the tea leaves on when the government will re-open. Many people thought there would be movement last week, but alas, here we still are. Delays at airports, the inability to get assistance on things like Social Security questions and the like, closures of national parks and other landmarks: a lot is being impacted right now. I am sure that it is already having an impact on economic activity. With so much uncertainty, people are likely to continue tightening up, robbing the economy of the necessary ripples for a stable and thriving financial ecosystem. Hopefully calmer and cooler heads will prevail soon.
Ben Sprague lives and works in Bangor, Maine as a Senior V.P./Commercial Lending Officer for Damariscotta-based First National Bank. He previously worked as an investment advisor and graduated from Harvard University in 2006. Ben can be reached at ben.sprague@thefirst.com or bsprague1@gmail.com.
Switching topics completely, I am proud to say that my son’s U12 travel soccer team that I coach won the Soccer Maine Division 1 state championship last weekend. I am very proud of them. They were down 1-0 early and then tied 2-2 fairly late in the second half, when we got one more in, the dam broke, and we ended up winning 5-2, a great culmination on a year filled with growth and development.
Until next year, and until next week for another edition of The Sunday Morning Post. Thanks for reading.