Shutdown Could Be Twice as Costly as White House Estimated

Shutdown Could Be Twice as Costly as White House Estimated


The Trump administration has raised its estimate of the cost to the economy from the shutdown, CNBC’s Steve Liesman reported Tuesday.

White House economists had initially weighed the effect of 800,000 federal employees not being paid, estimating that the missed paychecks would reduce GDP growth by 0.1 percent every two weeks. But taking into account the thousands of federal contractors who also won’t get paid, as well some government spending functions that have been halted, and the effect is now seen as a 0.1 percent reduction in GDP growth every week – twice the original estimate.

If the shutdown lasts until the end of January, a White House official told Liesman that GDP growth could drop by 0.5 percentage points for the quarter – a significant hit in an already slowing economy.

A bigger drag: In a note to clients Tuesday, Greg Valliere of Horizon Investments said the impact of the shutdown is growing: “What looked like a minimal impact on the economy in late December now looks like something a little more serious. We spent time last night with a leading economist who thinks a protracted shutdown could slice one-quarter of one percent off of first quarter GDP. Combined with bitter winter weather, this could reduce growth to something a little less than 2% this quarter, a far cry from the giddy 4% pace of last spring.”

Growth could even be negative: If the shutdown continues through March, GDP could actually shrink, says Ian Shepherdson of Pantheon Macroeconomics. “Even a one-month shutdown would seriously hit growth, to say nothing of the misery caused,” Shepherdson said. And if continues through the first three months of the year, “we would look for an outright decline in first quarter GDP.”

A glimpse at the private sector: Delta Air Lines CEO Ed Bastian told CNBC that the shutdown will cost the company an estimated $25 million this month, due to lost revenues related to a reduction in travel among government employees and contractors.  

But we may not know the full cost for a while: In an ironic twist, it could be some time before we know just how badly the shutdown has hurt the economy, since there’s a good chance that at least one quarterly GDP report will be delayed due to the lack of staff at the Bureau of Economic Analysis. The BEA is part of the Commerce Department, where the majority of employees have been furloughed.