The government shutdown could have widespread consequences for the US economy


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Parts of the federal government have been shut down since late December.
It’s created a spate of risks in the largest economy in the world.
For example, employment could fall for the first time since 2010.

A partial shutdown of the federal government entered its fourth week Saturday, making it the longest on record. From jobs to food stamps, an impasse over border security has put large swaths of the economy in jeopardy.

“A short-term shutdown does not usually have a big economic effect,” said Donald Moynihan, chair of the McCourt School of Public Policy at Georgetown University. “But at this point we are looking at the longest shutdown in the modern era. We should be worried.”

Growth is expected to slip

Business activity was already expected to expand at a slower rate in coming months. But economists have further lowered estimates for quarterly gross domestic product, or the total value of the nation’s goods and services, since the shutdown began.

Federal workers missed paychecks that were due this week, a development that will complicate the lives of more than 800,000 and that threatens to weigh on gross domestic product.

Congress approved a bill Friday that ensures back pay for furloughed employees, but it must still be signed into law and would not be distributed until after the shutdown ends. In the meantime, reduced income will weigh on consumer spending, which accounts for about 70% of economic activity.

“Maybe you can make up for one missed paycheck,” said Brad Setser, who served as a White House and Treasury Department economist in the Obama administration. “But the longer the shutdown goes on, the harder it is for the government workforce to keep up with spending.”

Lower consumption will also hit the private sector, which faces its own direct risks from the shutdown. Uncertainty can delay investment. A lack of regulatory oversight can chip away at consumer confidence. And those who rely on federal services can lose customers.

“Hotels may start seeing fewer customers who don’t want to spend their time in trash-strewn national parks, or dealing with long lines at airports,” Moynihan said. “If you shut down one sector of the economy, you quickly learn how connected it is to other parts.”

Employment could fall for the first time since 2010

With about 380,000 workers placed on unpaid leave while a series of government agencies are closed, the Wall Street Journal reported the shutdown could upend the longest stretch of continuous job growth in history.

Since monthly payroll growth has averaged at about 215,000 over the past five years, the shutdown could in January cause overall employment to fall for the first time in 99 months.

The disruption is also making it more difficult to keep an eye on the labor market. For instance, economists don’t know why applications for unemployment benefits fell significantly more than expected this week.

“We don’t know if the consensus was high because forecasters believe that the trend in claims has risen, or because they feared a big …read more

Source:: Businessinsider – Politics

      

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