The stalemate between Congressional Republicans and the White House over the FY2014 budget precipitated a Federal government shutdown on October 1st (the start of the new fiscal year). This cut off our access to latest data tracking the progress of the US recovery. The face-off between polarized legislators was triggered mainly by Republican opposition to President Obama’s healthcare law. The US hit its statutory borrowing limit of US$16.7tn on May 19 and has since employed extraordinary measures to cover spending. This debt ceiling would have to be raised going into the current fiscal year, but Republican-controlled Congress wanted spending cuts in return and, as a result, targeted health-law spending. In response, the Treasury warned that the US could run out of funds by October 17, potentially launching a technical default. At the eleventh hour, politicians managed to avoid this by reopening government and suspending the debt ceiling until early next year. However, the shutdown underscores Washington’s dysfunctional body politic and has severely dented confidence in policymakers. Worryingly, key fiscal issues are again being postponed to a later date; tense negotiations on a new 2014 budget, for example, will be the first order of business. This could push back the Fed’s schedule for tapering QE. The Fed held off from such a move in September and, in hindsight, that decision looks prescient.
Production was flat in July but rose 0.4% (m-o-m) in August and soared y-o-y from 1.4% to 2.7%. September’s ISM index of manufacturing expanded to 56.2, from 55.7 in August. The ISM survey of services, by contrast, noticeably faltered after a very strong August, casting uncertainty over an already opaque GDP outlook this month.
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