As government shutdown drags on, so, too, will drag on U.S. economy

By Rachel Layne

/ MoneyWatch

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The longer the partial government shutdown drags on the more it will drag down U.S. economic growth, Bank of America economists warned in a note today that lowered their first-quarter GDP growth estimate to 2.0 percent from their previous 2.2 percent.

"It is important to remember that this is a moving target — we will continue to slice the forecast for 1Q the longer the government is shut," economists led by Michelle Meyer wrote. "Indeed, our calculations show that the negative impact will magnify the longer the shutdown runs."

Indeed, for every week the shutdown continues, the drag on growth in GDP doubles, the economists wrote.

The partial shutdown that began on Dec. 22 was at day 35 on Friday. Analysts from S&P Global recently estimated the economic damage from the shutdown is surpassing the $5.7 billion in proposed funding for Presdient Trump's southern border wall that prompted the Washington, D.C., breakdown in the first place.

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U.S. economic growth could grind to zero as the shutdown drags on, Kevin Hassett, chair of the White House Council of Economic Advisers, said earlier this week. And White House Chief Mick Mulvaney has asked federal agencies to identify the programs that may be in the greatest jeopardy if the impasse continues into March or April, the Washington Post reported.

U.S. GDP grew at a 4.2 percent rate in 2018's second quarter and 3.4 percent in the third. A government figure for the fourth quarter, compiled and released by the Bureau of Economics and scheduled for Jan. 30 release, isn't likely to be ready on time because of the shutdown.

"Given the limited data on consumption and investment since the shutdown began, there is significant uncertainty around our baseline estimate [of slower GDP growth for the first quarter]," the Bank of America economists wrote, adding their forecast includes a wide range of both good and bad possibilities.

First published on January 25, 2019

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