The Economy

White House Doubles Shutdown Cost Estimate

The Trump administration now believes the government shutdown will subtract 0.1 percentage point from GDP growth every week.
Matthew HellerJanuary 15, 2019
White House Doubles Shutdown Cost Estimate

The Trump administration doubled its estimate of the costs of the partial government shutdown to account for the impact of reduced spending on economic growth.

Citing an unnamed administration official, CNBC reports the White House originally expected the shutdown would subtract 0.1 percentage point from growth every two weeks but has raised that estimate to 0.1 percentage point every week.

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“The administration had initially counted just the impact from the 800,000 federal workers not receiving their paychecks,” CNBC said. “But they now believe the impact doubles, due to greater losses from private contractors also out of work and other government spending and functions that won’t occur.”

That means if the shutdown lasts the rest of this month, gross domestic product would take a 0.5 percentage point hit, compounding the troubles of an economy already seen as slowing from the waning effects of tax stimulus, trade tensions, and gathering global weakness.

Economists differ in their view of the shutdown’s costs. Mark Zandi, chief economist at Moody’s Analytics, forecasts a half a percentage point hit to GDP if the shutdown lasts through March, roughly a third of the administration’s new estimate.

“Of this, about half will be due to the lost hours of government workers, and the other half to the hit to the rest of the economy,” he wrote in a research report.

But Ian Shepherdson, chief economist at Pantheon Macroeconomics, believes the combination of the shutdown and the tendency of the first quarter to be statistically weaker than the other three means growth could turn negative. “If the shutdown were to last through the whole quarter, we would look for an outright decline in first quarter GDP,” he wrote in a report.

The Commerce Department is scheduled to issue the fourth-quarter GDP report on Jan. 30 but government data collectors and number crunchers have been furloughed.

“There is no way for us to know [when the report will be issued] until we get back and evaluate all the various data sources that go into the advance estimate of GDP,” a Bureau of Economic Analysis official told CNBC.

Image: NPCA Photos/Flickr