Several federal employees protest the partial federal shutdown this week outside the McNamara Federal Building in Detroit. Thousands across the nation experienced their first payless payday on Friday.(caption info) -- Several union Federal employees protested the partial shutdown, Thursday Oct. 10, 2013, outside the McNamara Federal Building in Detroit. (The Detroit News/ Steve Perez) (Steve Perez / The Detroit News)
If Debbie Dodd can pull her finances together, it only seems fair that the federal government should do the same.
Instead, the ongoing shutdown of non-essential government services threatens to push Dodd, a Social Security claims representative, into the kind of money troubles roiling the nation’s government.
Friday was the first payless payday for Dodd and thousands of federal workers, whether they’re working — as Dodd is — or not. It doesn’t help that on her last payday two weeks ago, Dodd’s paycheck covered only six of her last 10 days worked, minus the full amount of all her regular deductions for taxes, healthcare, retirement and so on.
Her net pay: $179.
“I’m not going to be paying a lot of my bills,” the 55-year-old Detroiter said Thursday. She’s come close to foreclosure during the economic downturn, and has one son who’s out of a job. “I just got my finances straightened out and I have to play catch-up again. I’m absolutely upset about it.”
So far, the story of the federal shutdown’s impact on citizens focuses on shuttered national parks and stalled applications for passports. The real economic damage of the shutdown will come from two distinct domino effects. The first are the invisible delays and costs of federal services not rendered, whether its IRS audits that don’t collect money to airplane safety inspections that build up a backlog.
The second domino is the multiplier effect of 800,000 government workers all suddenly sitting on their wallets.
“It’s amazing to me that we haven’t picked up on the fact that we’re pulling money out of people’s pockets,” said Dean Baker, and author of “Getting Back to Full Employment: A Better Bargain For Working People.”
“You’re giving out money that would have gone to government workers, as well as other people who aren’t getting this or that benefit check, and the lack of that money will stunt economic growth,” Baker said. “While government workers are out of work, they’re going to be cutting back, even if we give them a paycheck to make up the lost pay.”
Retail spending accounts for 70 percent of all economic activity in the country, so the cash crunch of unpaid federal workers means that with the shutdown entering its third week, it’s already damaging the overall economy, said Scott Hoyt, senior director at Moody’s Analytics.
“Our take is that it will knock about half a percentage point off fourth-quarter annualized GDP growth,” Hoyt said. For this year, “It means 2 percent growth instead of 2.5 percent growth.”
Indirectly, that damage is passed on to non-federal workers, as the drag on the economy continues to depress wages, demand for labor, the number of jobs created and even the cost and quality of benefits for those workers who do have jobs.
And there’s the direct damage of a shutdown government, such as waiting for new medical treatments, new disability benefits from Social Security, the Veteran’s Administration the financial hit of waiting for a small business loan. According to the personal finance site WalletHub, the freeze on new loans from the Small Business Administration is hitting Michigan and other states where SBA loans have been the highest in recent years, including the Dakotas, Colorado and Alaska.
Workers at companies that depend on federal grants or some of the $1.4 billion per day awarded to government contractors could see their jobs at risk, as the pipeline of federal crash clogs, and could remained backed up for months after the shutdown ends.
Home buyers — and sellers — already are seeing deals fall through as they wait for FHA loans to start back up, and other mortgage and business borrowers could see their loan applications stall when lenders can’t confirm tax details with the IRS.
While borrowers who already have an active case with the FHA can go forward, “Folks who don’t already have a case number, they’re not able to do anything,” said Jeanette Schneider, senior vice president for RE/MAX of Southeastern Michigan. “They’re going to have to wait until the government gets active again before they can complete their transaction.”
Whether the shutdown means that you’re not getting paid or is hitting you by holding up federal benefits or a business loan, you need to take action sooner than later, warns Adam Levin, chairman of of the personal finance site Credit.com.
“Federal workers (who) have been furloughed need to make smart choices,” says Levin. “Find out if your mortgage and auto lenders are offering hardship programs. Do whatever you can to keep current. Make at least the minimum payments for credit cards. Seek a deferment for student loan payments. Be very careful if you are considering taking credit card cash advances, or short-term personal loans — they come with high interest rates.”
Locally, the Peoples Trust Credit Union is offering loans with a 5 percent rate for 12 to 36 months up to the amount of a full paycheck, while Southfield-based Charter One is offering its customers hit by the shutdown rebates on some fees, access to CD balances, and assistance with loan payments.
While politicians haggle over a way to end the shutdown, and sidestep the far worse damage that would come from breaching the debt ceiling, more and more Americans will start to feel the pinch, whether they work for Uncle Sam or just depend on him for a benefit payment, a grant or a contract, adds Greg McBride, senior financial analyst at the personal finance site Bankrate.com.
“If it were resolved very soon, this would be nothing more than a bump in the road,” McBride said. “As we get to the end of the month, then people start to miss their paychecks, and that’s where the economic impact starts to grow.”
Staff Writer Jennifer Chambers contributed.