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Health & Fitness

WEEK IN REVIEW "Government Shutdown Continues"

WEEK IN REVIEW

All eyes remain fixed on the broken US Congress. House Republicans and Senate Democrats have dug in their heels, with no budget deal in sight, as Obamacare health exchanges opened on October 1st. Speculation is building that the partial US government shutdown, also begun on October, could collide with the potentially devastating debt ceiling deadline of October 17th.

Initial market reaction to the US federal government deadlock was muted, but investors grew somewhat more anxious as the week progressed. Market jitters could build the longer the impasse persists. Reassurances by key players that the US government will not default on its debt have calmed investors for now. 

Economic data from the United States, United Kingdom, China, the eurozone and Japan were positive overall. Much of the world's economy is expanding at a slow but accelerating rate, based on purchasing managers' indexes and similar gauges. However, eurozone unemployment remains elevated and a sales tax increase in Japan, slated for next spring, could weigh on growth. The yield on the 10-year US Treasury note fluttered between 2.58% and 2.65% through the week, as investors seemed uncertain of what to expect. The US dollar fell to an eight-month low against the euro and the UK pound. 

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With no sign of a quick resolution to the US budget deadlock, speculation on its impact is building. If a shutdown extends much longer, the impact is expected to grow far beyond the 800,000 federal employees who have been furloughed. Programs and services affected include the Women, Infants and Children program, veterans' benefits, national parks and visas and passports. The housing industry is affected, as mortgage lenders are unable to verify Social Security numbers or access IRS tax records. The impact will also be felt by many contractors who work with federal departments. The US Treasury warned that even coming close to the projected October 17th debt-limit deadline could rattle investor confidence, lead to higher interest rates, higher debt payments and reduced business investments, and could threaten the economic recovery.

US initial claims for unemployment benefits rose by 1,000 to 308,000 in the week ended September 28th. The four-week moving average dropped to 305,000, the lowest level since May 2007. The government shutdown prevented the US Department of Labor from releasing its monthly jobs report on Friday morning. However, payroll processor Automatic Data Processing reported Wednesday that US private employment grew by 166,000 jobs in September, below the average forecast of 180,000 by economists surveyed by Reuters. 

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A spate of economic news from the eurozone was mainly positive. The composite purchasing managers' index (PMI) rose to 52.2 for September. The services gauge rose, while the manufacturing component fell slightly. Eurozone retail sales rose by 0.7% in August from July. But unemployment remained elevated at 12.0%. Economists surveyed by Bloomberg predict that the eurozone unemployment rate will peak at 12.3% later in 2013 and decline to 12% in 2015.

Japanese Prime Minister Shinzo Abe made the long-anticipated move to raise the country's sales tax by 3 percentage points in an effort to reduce Japan's enormous debt despite the risk of curbing growth. Abe also promised more stimulus to ease the economic impact of the sales tax hike. The sales tax, currently 5%, will rise to 8% next April. Japan's industrial output fell 0.7% in August from July, but retail sales rose 1.1% during the month, and housing starts were 8.8% higher in August than a year earlier.

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