U.S. Government Shutdown Could Reduce GDP Growth by 0.2% Q/Q Every Week

U.S.Government Shutdown in 2018
iStock.com/gguy44

Maybe President Donald Trump isn’t that great of a dealmaker after all. On Friday, the U.S. government shutdown after Republicans and Democrats in the U.S. Senate failed to reach an agreement on a stopgap bill. Sixty votes were needed to keep the government open for four weeks, but votes for the spending bill came up wildly short at 50-49. The government shutdown effect on the economy means thousands of U.S. government employees are furloughed. How long this U.S. government shutdown in 2018’s early stages will last isn’t known, but we do know shutdown will negatively affect U.S. GDP growth.

First things first: this is the first time in modern history that a federal government shutdown has occurred with the same party controlling both Congress and the White House. To make matters worse, it happened on the one-year anniversary of Trump’s inauguration.

What were the main sticking points? Democrats refused to vote for a spending bill unless it included an agreement on the Deferred Action for Childhood Arrivals (DACA) program that expires in March. That’s the program that allows those who were brought into the U.S. illegally as children to stay.

Republicans won’t agree to DACA Demands unless Democrats approve border security spending, which includes money for President Trump’s much hyped border wall.

Advertisement

Sixty votes were needed to keep the government open for one month. Because Republicans only have 51 seats, they needed some Democratic votes for the bill to pass. Again, it failed 50-49.

It didn’t take long for the name-calling to begin. Republicans called it the “Schumer shutdown,” while some Democrats called it the “Trump shutdown.” Regardless of who is to blame, the fact is that the U.S. government has shut down for the second time in roughly four years. And it could cost the U.S. economy billions.

The impact of the government shutdown was immediate. Hundreds of thousands of federal employees have been temporarily laid off. We have now seen the Department of Treasury closing, the Environmental Protection Agency closing, and the Library of Congress closing as a result of this. National parks and museums have also been shut down, hurting tourism and local economies.

Essential services, such as the military, the FBI, and the CIA will continue to function. But if the government shutdown persists into February, many of those employees will not get paid.

Beyond the financial and emotional strain on individual workers and families, the U.S. government shutdown could have a broader effect on the U.S. economy. Until the government shutdown ends, the U.S. economy will lose close to $1.0 billion per day or $6.0 billion a week. For each week the U.S. government is shut down, real GDP is expected to be reduced by 0.2% quarter-over-quarter (Q/Q) annualized.

Government Shutdown in 2013 Led to a Loss of $24.0 Billion to the U.S. Economy

Poll after poll continues to show that Americans do not think Washington is even remotely effective. The 2018 government shutdown will not help that tarnished image; shutdowns inconvenience the entire country, interrupting services and wasting money.

The U.S. government shutdown in 2013 was the most recent one prior to this, having taken a $24.0-billion chunk out of the U.S. economy.

A little more than four years ago, in October 2013, more than 850,000 government workers were temporarily laid off for 16 days for a combined total of 6.6 million days. Keep in mind that consumer spending accounts for more than 70% of U.S. economic activity. When more than 800,000 people don’t get paid, it affects the economy in the short term.

Lost productivity was pegged at $2.0 billion and the U.S. government had to pay interest on payments that were late because of the shutdown. National parks lost around $500.0 million in revenue because they were also closed during the 16-day shutdown. Almost $4.0 billion in tax refunds were stalled, taking another bite out of consumer spending.

Interestingly, in 2013, the U.S. government shutdown because Republicans and Democrats were arguing about funding for the Affordable Care Act, or “Obamacare.” Back then, Trump criticized then-President Obama for the shutdown for failing to “lead.”

On the campaign trail, Trump said past government shutdowns were the fault of the president in the White House. It would be different if he was in office, he said.

At the Republican convention in July 2016, Trump intoned, “Nobody knows the system better than me, which is why I alone can fix it.”

It hasn’t worked out that way. It’s a lot more difficult to bring two disparate parties together than seal a real estate deal. And it’s going to cost the U.S. economy “bigly” in the first quarter of 2018.

 

Sources

How Will a Government Shutdown Impact the U.S. Economy? Here’s What the Analysts Say,” Fortune, January 19, 2018.

Economic effects of the 2013 U.S. federal government shutdown,” Journalist’s Resource, last accessed January 22, 2018.

FULL SPEECH: Donald Trump – Republican National Convention – THE NEXT PRESIDENT OF THE USA?,” YouTube video, 1:16:40, July 21, 2016, posted by “ABC15 Arizona,” last watched January 22, 2017.

Advertisement

Advertisement