Gov't Shutdown

Comments

7 comments

  • Avatar
    IMPLAN Support
    Hi Scott, Agreed - time will be the major factor here. If the Federal Government keeps all its employees and eventually makes all the same purchases, just at a later date (i.e., it simply delays the purchases it was planning to make), then there won't be much of a direct or indirect effect. However, because the Federal employees are not working and thus not getting paid, there will certainly be some induced effects - there will be a loss of income tax revenue and likely some reduction in household (HH) spending. However, a standard Labor Income Change would surely overstate the decrease in HH spending, as most of these employees will continue to pay rent, utilities, etc. (by borrowing or dipping into savings). So you may want to use a modified HH Spending Pattern to remove the spending on rent, utilities, etc. and set the Activity Level = (the proportion you think spending will be reduced) * (payroll minus payroll taxes minus personal taxes minus savings). The reason for removing the taxes and savings is because a HH Spending Pattern does not remover these - rather, it spends the entire amount specified in the Activity Level. Because of this, a HH spending pattern will not show you the lost tax revenue but this can be calculated using the tax rates in the detailed SAM. Please let us know if you need any more information or have additional questions.
    0
    Comment actions Permalink
  • Avatar
    sdm
    Thank you. About 1/2 is employment. On the balance of federal spending would it be best to adjust per the federal operating budget spending pattern or other appropriate fed spending patterns based on the type of demand (again time dependant)? Finally, is there a method to get at the impact of the federal shut as it relates to specific industries, in my case real estate. In the case of real estate, work stops on say 10 percent of sales, and some sales will fall through. Is it fair to treat that as a loss of sales and attribute that to the shut down? Again there may be no decrease in staff (time dependent) but there may be a real sales loss- the realtors are very concerned about this. At some level this may have more to do with consumers losing confidence in economy and so not pursuing housing turning the situation into a longer term problem and not just a short term delay. At some point this will be more clear.
    0
    Comment actions Permalink
  • Avatar
    kclark
    Hello Scott, Unfortunately, this is real tough without making some assumptions, even without considering lack of housing's impact on business expansion. If you wanted to assume that the loss of home sales was due to the government shut-down, he could run the commissions portion of that sale value through a Labor Income Change. It would still be a short-term impact unless the sales price of the home is permanently lower in which case the difference in commission value might be a real loss. If the shut-down persists, then in the longer term construction on new housing will shut down once unsold inventory reaches a certain level - that loss would affect both sales activity and construction activity.
    0
    Comment actions Permalink
  • Avatar
    IMPLAN Support
    Hi Scott, Unfortunately, this is real tough without making some assumptions even without considering lack of housing's impact on business expansion. If you wanted to assume that the loss of home sales was due to the government shut-down, he could run the commissions portion of that sale value through a Labor Income Change. It would still be a short-term impact unless the sales price of the home is permanently lower in which case the difference in commission value might be a real loss. If the shut-down persists, then in the longer term construction on new housing will shut down once unsold inventory reaches a certain level - that loss would affect both sales activity and construction activity.
    0
    Comment actions Permalink
  • Avatar
    sdm
    So one needs to be focused on the employment income and the flow of where the consumer spends their money during the shutdown. This is about 80 percent of spending (not 1/2 like I stated) and I agree the HH spending patterns change categories but might not change in aggregate that much in the short term. In the case of my real estate it does look like there would be an proprietor income impact, but only if the buyer stops the process and does something else. In the case of contractors running hotels, etc in national parks, that is a real loss of owner income that they will not get back even though it is a tiny fraction of total federal govt spending.
    0
    Comment actions Permalink
  • Avatar
    IMPLAN Support
    Hi Scott, We would agree about the recreation spending (vendors in National Parks). But there are many recreational substitutes so the loss is mostly local. If you are using a National model, then those substitutes come into play as alternative spending. [url=http://www.jec.senate.gov/public/?a=Files.Serve&File_id=e29f1102-765b-4676-9b92-952a5f75d099]Here is an article[/url] that we found that discusses this issue of the government shut down and the housing market that we thought might be helpful. Please let us know if you have any additional questions, concerns or thoughts.
    0
    Comment actions Permalink
  • Avatar
    sdm
    That is a good article but it does not tell us how to use IMPLAN in the process. I will post a process on mooredatallc.com that I think represents best practice. I believe from an impact standpoint it is best to focus on wage earners like you have stated in this process. The one true unknown is the impact of uncertainty, but I believe this can also be modeled in IMPLAN with a little recession research. Thank you for your help. S
    0
    Comment actions Permalink

Please sign in to leave a comment.