Shutdown's Economic Hit Seen to Be Muted
21 January 2018 - 4:53PM
Dow Jones News
By Harriet Torry
The federal government shutdown could sideline significant
numbers of federal employees and leave government contractors out
in the cold, but in a $19.5 trillion economy with 147 million
workers, a shutdown, even a long one, isn't expected to leave much
imprint on the broader economy.
The last government shutdown in October 2013 sent 818,000
workers, or 30% of all federal government employees, home without
pay for more than two weeks.
Nonetheless, in the final quarter of 2013, the economy had its
strongest performance in two years, notching growth at a 4% rate
despite the 0.3 percentage point hit to gross domestic product the
Commerce Department said the shutdown caused.
The labor market held up well during the shutdown period, too:
U.S. employers created 212,000 jobs that October, up from 190,000
the prior month.
In 1995 the government shut down twice, for five days in
mid-November and for three weeks from mid-December through the
first week of the New Year. The economy grew at a 2.9% rate in the
final quarter of 1995, 2.7% in the first three months of 1996 and
then burst out with growth at a 7.2% rate in the quarter after
that. While payrolls dipped by 15,000 in January 1996 after two
months of gains, hiring bounced back in February with a bumper
429,000 new jobs.
This time around, economists say the impact of any shutdown on
the broader economy will depend crucially on its duration. Most
shutdowns in the past 40 years have lasted fewer than 10 days.
"Relatively short-lived shutdowns of several weeks or less that
occur early in the quarter often leave time for activity to recover
later in the quarter, and the official GDP statistics may not see
much, if any, drag," Barclays' analysts Shawn Golhar and Michael
Gapen said in a note to clients. They expected a shutdown to shave
0.1 percentage point off annualized gross domestic product for each
week it drags on in the quarter.
There have been 18 government shutdowns since 1977, ranging from
a day to three weeks. Just six lasted more than 10 days. Ten lasted
five days or less. Economists point out that shutdowns have little
impact on economic data, in part because much government spending
deemed essential, like defense and law enforcement, continues as
normal. Moreover, mandatory spending, such as on Social Security
and Medicare, continues since the shutdown only affects programs
that go through annual appropriation processes.
"Over time they've found a snooze button to make it less
costly," said Vincent Reinhart, chief economist at Standish Mellon
Asset Management, by designating more workers as essential.
That is little consolation for government workers not getting
paid for an indeterminate period. And while furloughed government
employees usually receive back pay, the lost productivity of the
hours they were idle isn't easily recouped.
Pamela Gilbertz, a health-communications specialist at the
Centers for Disease Control and Prevention in Atlanta, said the
shutdown means many workers won't be able to log on to the CDC
network to check email, or download the pay statements needed to
apply for unemployment benefits.
"For the majority of people it's very difficult to miss even one
paycheck because people have bills to pay and there aren't a lot of
people who have the financial resources to cover everything," she
said.
Indirect costs also pile up for government contractors who can't
bill hours during a shutdown, yet have to keep up with their own
outlays.
Looking back at the 16-day shutdown in October 2013, "you can
see the impacts" in Washington and other regions with many federal
workers, said Ellen Zentner, chief U.S. economist at Morgan
Stanley. But when it comes to the economy as a whole, "it's very
difficult to see that there was an impact," she said.
--Ben Leubsdorf contributed to this article.
Write to Harriet Torry at harriet.torry@wsj.com
(END) Dow Jones Newswires
January 21, 2018 11:38 ET (16:38 GMT)
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