Morgan Stanley has today released a note reportedly raising its threat level to the US economy from the government shutdown to Econ Defcon 3, signalling rising jitters and tightening financial conditions (see next table).
According to Morgan Stanley, a raft of opinion polls and internet searches suggest that the US public is growing increasingly concerned about the stand-off, which is only likely to escalate as the 17 October debt ceiling deadline approaches. It is also expecting the University of Michigan Consumer Sentiment Survey to drop sharply when released on Friday.
Financial markets also appear to be growing increasingly nervous, with the most recent 1-month Treasury bill auction experiencing a big 23bps jump in yields – far worse than any 4-week auction in the summer of 2011 when the US debt ceiling fight was taking place.
The shutdown is also adversely impacting data collection processes, which is likely to affect the integrity of future economic data releases and make it increasingly difficult to gain a clear picture of how the economy is travelling until later in the year.
