‘The Worst Is Yet To Come’: As Federal Workers Tap Retirement Funds, Confidence In Economy Collapses

And so, Americans are increasingly concerned about the ongoing government shutdown, which isn’t surprising, because after all, some folks aren’t being paid and Donald Trump continues to exhibit all the signs and symptoms of a man who is drunk on power, senile and delusional.

A Bloomberg gauge of consumer expectations for the economy dropped for a third consecutive month to 44.5 in January – that’s the lowest reading since the election, which is fitting. The “Trump bump” in economic expectations is now history.

(Bloomberg)

Obviously, that bodes ill for consumer spending, and so goes the American consumer, so goes the economy. The news comes amid increasingly shrill warnings from analysts and economists who, as a group, are growing concerned that “this time is different”, so to speak, when it comes to whether the shutdown will end up translating into a demonstrable drag on growth.

As documented here on Wednesday, Trump is now forcing more federal employees to work without pay in an increasingly desperate attempt to avoid a scenario where, for instance, tax refunds aren’t processed, which would presumably raise the risk of a sharp, shutdown-related deceleration in the economy.

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Meanwhile, the human interest stories are proliferating, raising the stakes for the White House as the media puts a personal spin on the impasse.

“Growing numbers of federal workers have been tapping their retirement funds in a sign of how the government shutdown is squeezing day-to-day finances”, Bloomberg wrote Thursday, adding that “Federal Retirement Thrift Investment Board data show a 34% jump in the number of hardship withdrawals in the two and 1/2 weeks after Christmas when compared to the same period last year.”

Government contractors are perhaps in the worst position of all. They will not receive back pay once the shutdown ends (barring some kind of intervention from Democrats on the Hill), which means they don’t have the “luxury” of thinking about this as a “paid vacation” (as Kevin Hassett put it last week, while trying to spin the shutdown as somehow a positive development for federal workers). Here’s VOX:

Approximately 500,000 government contractors work for agencies affected by the government shutdown, according to New York University public service professor Paul Light – though it’s unclear exactly how many of those are affected by this shutdown so far. His research has previously found that contractors make up about 40 percent of government workers overall, a pool that has grown significantly over the past two decades or so. They include security guards, cafeteria workers, developers, and researchers.

The fallout of the shutdown has been devastating for contractors, many of whom are scrambling to make up for the gap in pay by applying for unemployment benefits, working for Uber and Lyft, or finding other part-time gigs. Many say the shutdown has put their ability to afford housing bills, medications, and even food for their families at risk.

So, what comes next? Well, presumably more tweets from Trump and more fearmongering about immigrants in a futile effort to convince Democrats that it’s a good idea to fund a vanity project and a monument to xenophobia on the southern border.

In the meantime, BofAML is out warning that “the worst is yet to come”.

“In addition to the direct drag on real government spending, the disruption is very likely spilling over into the real economy through consumer consumption and private businesses investment”, the bank writes, in a note dated Thursday, on the way to delivering the following rather stark warning:

With the White House and the Democrats still far apart on a deal, additional interruption to additional government programs is likely. For instance, the shutdown risks delaying government payments to millions of recipients in the form of tax refunds, starting in February and funding for food stamps will likely run out starting in March (Table 1). As each of these deadlines passes, the negative impact on the economy will multiply, adding to the 0.1pp drag for every two weeks that the government remains shuttered.

We’ve said this before and we’ll say it again: at some point, the GOP needs to decide that the future of the party is more important than a reality TV show host. Republicans are now in “existential crisis” territory. Nobody is going to forgive the last two years or forget who was complicit.

There is a real risk that the Republican party will end up irreparably splintered after Trump. Internal discord and the inevitable public backlash that will play out once Trump is no longer in office has the potential to render the party unable to advance the conservative agenda for years. That should scare whatever “good” Republicans are left in Washington.