The government shutdown is now in its second week and there doesn’t appear to be much hope of resolving the issues at stake anytime soon. However, most experts agree that the impact of the shutdown may not be catastrophic despite costing the economy approximately $160 million per day (according to global markets research firm IHS). Well, it may not be catastrophic if the shutdown gets resolved quickly.
What could be devastating to the economy would be if the shutdown leads to a political stalemate that lasts beyond October 17th. After that the Treasury Department will not be able to guarantee the payments of the United States’ bills. To avoid default, both sides, the Republicans and Democrats, will need to agree to either a short term or long term resolution to the debt ceiling.
What is the debt ceiling?
It is the limit on the amount of money the United States government is able to borrow in order to pay debts and obligations that were previously agreed to by the President and Congress.
If a resolution to the debt ceiling issue is not found Gross Domestic Product, employment and financial markets would all see significant losses while interest rates would rise. Domestic and foreign confidence in our economy would also plummet.
Already confidence in the economy by both consumers and investors is waning. According to Gallup, the Economic Confidence Index is at the lowest level since December 2011. Gains in economic confidence are what helped fuel the recent recovery, economic growth, and, therefore, increased demand for commercial and residential real estate. Should congress come to a consensus soon, demand for real estate should continue to grow. However, the longer the shutdown and debt crisis linger, the greater the impact will be on the real estate markets.
According to a recent report on the Cincinnati office market, Cincinnati has seen demand increase each of the last three years in the office sector. Should a resolution be found and demand for office space continue to grow, 2014 will see approximately 60,000 square feet of office space absorbed by area businesses with an additional 120,000 square feet in 2015. Cincinnati area job growth is expected to continue at about 1% year over year.