Shutdown's economic impact may be double previous estimates: White House economists

The shutdown has left 800,000 federal employees working without pay, along with throwing thousands of government contractors at least temporarily off the job.
The shutdown has left 800,000 federal employees working without pay, along with throwing thousands of government contractors at least temporarily off the job.PHOTO: NYTIMES

WASHINGTON (NYTIMES) - The partial government shutdown is inflicting far greater damage on the US economy than previously estimated, the White House acknowledged on Tuesday (Jan 15), as President Donald Trump's economists doubled projections of how much economic growth is being lost each week 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 it could take on a sustained economic expansion.

To blunt the shutdown's effects, the administration on Tuesday called tens of thousands of employees back to work, without pay, to process tax returns, ensure flight safety and inspect food and drugs.

For now, the White House shows no signs of being ready to relent, and Mr Kevin Hassett, the chairman of the Council of Economic Advisers, continued to blame Democrats for the economic damage.

"Congress needs to look at the harms that we're talking about," Mr Hassett said, "and address them."

 
 
 
 

Mr Hassett said on Tuesday that the administration now calculates that the shutdown reduces quarterly economic growth by 0.13 percentage points 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 that the economy has already lost nearly half a percentage point of growth from the four-week shutdown.

Last year, economic growth for the first quarter totalled 2.2 per cent.

The impasse has left 800,000 federal employees furloughed or working without pay, along with throwing thousands of government contractors at least temporarily off the job. While federal workers are likely to receive back pay once the furlough ends, most government contractors will not.

The shutdown "is threatening to derail this economic expansion", Mr Bernard Baumohl, chief global economist for the Economic Outlook Group, said in a research note on Tuesday.

Its effect on federal workers' spending plans is particularly worrisome for the automotive and housing markets, he said.