AP Photo/Carolyn Kaster
The U.S. Capitol dome is seen past the base of the Washington Monument just before sunrise in Washington, Saturday, Dec. 22, 2018.
Saturday, Dec. 22, 2018 | 9:36 a.m.
The partial shutdown of the federal government, which began early Saturday, is unlikely to make much of an immediate dent in the growth of the U.S. economy, but it could make life more difficult for millions of Americans in ways both big and small.
The shutdown could also contribute to the growing sense of worry on Wall Street, in part by raising fears about the ability of Congress to manage a more consequential deadline: the need to authorize an increase in government borrowing before the federal debt reaches the current limit, most likely in March.
President Donald Trump appeared unfazed by an economic threat his critics contend is of his own making and that he initially said he would “own.”
“We are totally prepared for a very long shutdown,” Trump said Friday, as he continued to insist he would veto any government funding bill that did not include money to build a wall along the border with Mexico.
The direct economic consequences of the shutdown will be modest in the aggregate. Congress has already approved funding for roughly three-quarters of the federal government, which will not be affected. Standard & Poor’s, the credit rating firm, estimates that shutting down the remainder could shave $1.2 billion off the gross domestic product each week the government is closed. That is a very small fraction of the nation’s annual economic output, which will be around $20 trillion this year.
But it could inflict pain on as many as 500,000 government employees, who could be temporarily out of work during the holiday season. Those who live paycheck to paycheck or had been waiting to amass more funds before paying large bills could face a difficult choice between spending less and borrowing more.
Before the shutdown began, businesses around Washington that cater to government employees were bracing for the worst and tiring of the annual shutdown theatrics that tend to occur around Christmas.
“It costs billions of dollars every time they do this, not to mention the impact on consumer confidence every time they threaten to do this,” said Mike Brey, owner of two Hobby Works shops in Maryland.
Past government shutdowns have also caused scattershot disruptions to the broader economy.
The most recent prolonged shutdown, in October 2013, lasted 16 days. Some people’s lives were largely unaffected. Others were significantly inconvenienced. The beginning of the Alaskan crab-fishing season was delayed by four days, a significant setback for the region’s fishing fleet. Head Start centers serving 6,300 children closed for up to nine days. Four Nobel Prize-winning scientists were forced to shutter their government research laboratories for the duration.
Economic analysts subsequently concluded that the shutdown caused a measurable loss of economic activity in the fourth quarter of 2013. Several analysts estimated the reduction in annual economic growth at around 0.1 percentage points, costing the nation $24 billion.
Although the government experienced two shutdowns earlier this year, S&P notes that such a closing could be more precarious this time around because the fiscal stimulus of the $1.5 trillion tax cuts that Congress passed last year is starting to fade.
The White House is so far portraying a sense of calm. Kevin Hassett, chairman of the White House’s Council of Economic Advisers, said in an interview Friday that the effect of a brief shutdown would most likely represent a “rounding error” on fourth-quarter economic growth, which he projects to be near 3 percent.
Hassett, who spent part of his Friday digging through data about previous shutdowns, said that the longer-term effects on federal workers would be minimal because those workers would almost certainly be repaid. After past shutdowns, Congress has voted to pay federal workers for the hours they did not work, and it could do so again.
Hassett also said he was unconvinced by studies that showed a significant spillover effect of a government shutdown into the private sector.
“There have been many negotiations like this in the past, and we’ve looked back at the way they’ve been covered, and it looks like people were much more hysterical about what might happen than what in retrospect would have been logical,” he said.
But the shutdown over funding for a border wall could indicate rough times ahead in Washington. Republicans now hold majorities in both chambers of Congress, but the difficulty of passing legislation could increase next year when Democrats take control of the House.
Among the most consequential fights will be over the statutory debt limit, which Congress extended to March 2. Emergency measures to reduce the need for borrowing could allow the administration to extend the deadline until the summer, but no longer.
Since Republicans used the debt limit to extract concessions from President Barack Obama, some analysts predict that Democrats could try to use it as leverage with Trump. A standoff over the debt limit has the potential to be more calamitous than the clash over funding the government because of the potentially catastrophic consequences of the United States defaulting on its obligations.
A shutdown “portends a difficult set of negotiations going into the debt ceiling, which can be much more problematic than a shutdown for the faith and credit of the United States economy,” Christopher Campbell, a former assistant secretary for financial institutions at the Treasury Department who left this year, said Friday.
