Senior officials inside Donald Trump’s administration have acknowledged the federal government shutdown, without an end in sight, could hurt the US economy. The damage could be worth billions of dollars each week, according to analysts.
“This isn’t the way to have a discussion, shutting down the government and lowering the GDP,” Scott Bessent, the US treasury secretary, told the CNBC financial news network. “We could see a hit to the GDP, a hit to growth and a hit to working America.”
Prolonged failure to reach a deal would be costly.
“We estimate that each week of shutdown would reduce US GDP growth by 0.1 percentage points (ppt) in Q4 (in annualized terms), translating into a $7 billion weekly hit to the economy,” a report by EY Parthenon said, citing the effect of lack of pay for furloughed federal workers, delayed government procurement of goods and services and decline in demand.
A White House memo by the Council of Economic Advisers obtained by Politico suggested the economic hit could be even greater, estimating the shutdown could result in a $15bn loss in US gross domestic product every week the shutdown extends, with a monthlong shutdown resulting in an additional 43,000 unemployed workers.
The memo estimates a monthlong shutdown would reduce consumer spending in the US by $30bn.
“CEA analysis indicates that the shutdown may have wide-ranging economic effects that reduce American prospects through lower growth, higher unemployment, as well as disruptions to social security, air travel, and nutritional support to women with infant children,” the memo states. “These effects will intensify the longer the shutdown lasts.”
The EY Parthenon analysis noted that some of the damage would be offset by backpay for furloughed workers and a rebound in activity once the government reopens, but cautioned of lasting effect.
“Beyond the immediate macroeconomic consequences, a shutdown would also weigh on financial markets and private sector confidence,” added the analysis. “Perhaps most critically, it would delay the release of key economic data at a pivotal juncture for the economy – complicating the task of Fed policymakers, investors and business leaders who are navigating a highly uncertain, data-dependent environment.”
The last government shutdown, a partial shutdown of 35 days from December 2018 to January 2019, was estimated to cost at least $11bn to the US economy, including a permanent $3bn loss, according to the congressional budget 0ffice. The report did not incorporate some indirect impacts of the shutdown, such as a halt in federal permits and reduced access to loans.
