Shutdown more damaging than estimated: White House

Federal workers, contractors and supporters rallying outside the White House last week to demand that President Donald Trump and the Senate end the partial shutdown.
Federal workers, contractors and supporters rallying outside the White House last week to demand that President Donald Trump and the Senate end the partial shutdown.PHOTO: NYTIMES

Trump's stand-off with Democrats hurting growth, may push US economy into contraction, say advisers

WASHINGTON • The partial government shutdown is inflicting far greater damage on the US economy than previously estimated, the White House has acknowledged, as President Donald Trump's economists doubled projections of how much economic growth is being lost each week as the stand-off with Democrats continues.

The revised estimates from the Council of Economic Advisers show that the shutdown, now in its fourth week, is beginning to have real economic consequences. The analysis, and other projections from outside the White House, suggests that the shutdown has already weighed significantly on growth and could ultimately push the US economy into a contraction.

While Vice-President Mike Pence previously played down the shutdown's effects amid a "roaring" economy, White House officials are now cautioning Mr Trump about the toll on a sustained economic expansion. Mr Trump, who has hitched his political success to the economy, also faces other headwinds, including slowing global growth, a trade war with China and the waning effects of a US$1.5 trillion (S$2.03 trillion)) tax cut.

Some people involved in the shutdown discussions in the White House have privately said they anticipate Mr Trump will grow anxious about the economic impact in the coming days, accelerating an end to the stalemate. Others close to the President believe he has leverage and are encouraging him to stand by his demands.

For now, the White House shows no signs of relenting, and Mr Kevin Hassett, chairman of the Council of Economic Advisers, continues to blame Democrats for the economic damage: "Congress needs to look at the harms that we're talking about and address them."

He said on Tuesday that the administration now calculates that the shutdown reduces quarterly economic growth by 0.13 percentage point for every week that it lasts - the cumulative effect of lost work from contractors and furloughed federal employees who are not getting paid and who are investing and spending less as a result.

 
 
 

That means the economy has already lost nearly half a percentage-point of growth from the shutdown. Last year, growth for the first quarter totalled 2.2 per cent.

Mr Trump has demanded that Democrats, who control the House of Representatives, include US$5.7 billion for a border wall in any measure to fund the government. He has refused to support legislation providing money for a range of agencies to operate until he gets the wall funds.

Democrats have refused and, along with some Republicans, have tried to persuade the President to reopen the government and negotiate border security afterwards.

The impasse has left 800,000 federal employees furloughed or working without pay, along with thousands of government contractors at least temporarily off the job.

A version of this article appeared in the print edition of The Straits Times on January 17, 2019, with the headline 'Shutdown more damaging than estimated: White House'. Print Edition | Subscribe