Economic pains from government shutdown deepen — and spread

/ AP

Shutdown impact felt beyond federal workers

Washington – Delta Air Lines can't get eight new aircraft in the air. Roughly a million government employees and contractors aren't being paid. Some Americans who are trying to start small businesses face delays in obtaining the required tax identification number from the IRS.

As the partial government shutdown moves through its fourth week with no end in sight, the economic blow is hitting not only federal workers but also businesspeople, households and travelers across the country. And while the damage to the overall economy so far remains slight, economist foresee real damage if the shutdown drags into February or beyond.

"Even if the shutdown is over by the end of the month, the hit to growth will be material," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a research note.

Shepherdson projects that after growing for nearly 10 years, the economy might even contract in this year's first quarter if the shutdown lasts through March. Other forecasts are less dire. Mark Zandi, chief economist at Moody's Analytics, thinks if the shutdown extends that long, the economy would slow by 0.5 percentage point but would remain on solid footing.

Hackers could wreak havoc during government shutdown

For now, though, the shutdown is rippling through the economy in ways that are not always visible, making it hard to fully assess its consequences. Complicating the task is that much of the economic data the government normally provides — from retail sales to home construction to the nation's GDP — has been suspended because the agencies that compile it remain closed.

With national parks shut down and some travelers suffering through long security lines and in some cases partial airport closures, for example, many Americans are having to decide whether to cancel travel and vacation plans.

"It is now plainly evident that the shutdown is affecting air travel, and when that happens, damage to the overall U.S. economy will shortly follow," said Jonathan Grella, a spokesman for the U.S. Travel Association, a trade group.

Some companies are pointing to specific problems: Delta said Tuesday the shutdown is costing it $25 million a month in government travel. Delta CEO Edward Bastian said with the Federal Aviation Administration partially closed, Delta will also likely delay the start date of eight new aircraft.

The Securities and Exchange Commission, which oversees public stock offerings, is mostly closed because of the shutdown. As a result, some companies that had been planning initial public offerings in coming months, including Uber and Lyft, are likely facing delays. Marianne Lake, chief financial officer for JPMorgan Chase, said the bank could lose out on fees from IPOs and merger and acquisition deals that would be delayed if other shuttered agencies can't approve them.

Government shutdown impacting U.S. economy

For small companies, too, the effects are increasingly making a mark. Edward Farrer, an executive at Principal Manufacturing, a manufacturer in Broadview, Illinois, said when the shutdown took effect, his company had nearly won approval for a request to the Commerce Department to import specialty steel from Europe free of U.S. tariffs. Commerce is among the now-closed government departments.

"We think we'd got it to the goal line and were waiting for an approval, but everything is at an impasse because of the shutdown," Farrer said.

Principal Manufacturing uses mainly American-made steel in the parts it sells to automakers and other industrial companies. But it imports some steel from Europe that it uses to make a component for auto underbodies. Last spring, it asked the Trump administration to exclude that steel from the 25 percent tariffs the White House imposed on steel imports. Commerce was considering the request as part of a process the administration had established for companies that say they can't obtain the steel they import from elsewhere.

For now, Farrer said Principal is paying the tariffs, which typically cost it tens of thousands of dollars a month. It wants to keep doing the work, so the company is eating the cost, Farrer said. "But we can't do it forever."

Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, said the chamber has heard from members that have been unable to obtain an employer ID number from the IRS. That number is needed to open bank accounts and file tax returns.

Eric Smith, an IRS spokesman, said most U.S.-based businesses can obtain the numbers online, but paper applications aren't being processed.

Good Samaritans help federal workers struggling during shutdown

The most hard-hit by the shutdown, of course, are government workers themselves, who missed their first paychecks Friday, and contractors that work closely with the government. Many have had to cut back on purchases, lowering overall consumer spending.

Among them is Pearl Fraley of Greenville, North Carolina, a consumer safety inspector for the food safety inspection service. Fraley, 53, helps ensure the safety of the nation's food supply by monitoring slaughter processing plants — a job she has held for over 15 years.

Fraley's position is deemed essential, so she has to go to work even though she isn't being paid. She and her co-workers were told in an email that if they work 40 hours, they aren't eligible for unemployment benefits under North Carolina rules — even though they're receiving no pay.

Fraley said she feels like "an indentured servant" and said her stress level is "over the top."

"I can't pay my rent," she said. "I can't pay my car payment or insurance. I have money for gas to go to work and for food."

For now, her 25-year-old daughter is contributing some of the money she earns from working at McDonald's. "McDonald's doesn't typically pay enough for someone to actually live on," Fraley noted.

Moody's Zandi said the shutdown could inflict longer-term damage on the government — and ultimately on the economy — in ways that might not be obvious. He noted, for example, that some demoralized federal employees, particularly those with vital skills in such areas as cybersecurity, might quit for jobs in the private sector. Federal agencies may also have a harder time recruiting young workers.

"Government workers have options," Zandi said, particularly with unemployment low and many employers desperate to fill jobs. "This could be quite debilitating to the government."

First published on January 16, 2019

© 2019 The Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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