CBO says shutdown cost the U.S. economy $11 billion

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The Congressional Budget Office estimates the 35-day partial government shutdown will cost the U.S. economy a total of $11 billion.

As the federal government reopens after the longest partial U.S. government shutdown in history, a new report from the CBO says the closure resulted in $11 billion in lost growth in gross domestic product — $3 billion in the fourth quarter of 2018 and a potential $8 billion in the first quarter of 2019 — largely because of delayed spending by the roughly 800,000 federal workers who went unpaid during to the shutdown.

In its report, the CBO says the delayed spending will be recovered in the second quarter of 2019 and beyond, but it also predicted that about $3 billion in lost growth will never be recovered. The shutdown continues to spell uncertainty for many U.S. companies, as many federal agencies are just beginning to address significant backlogs that built up during the shutdown.

The White House and Congress came to an agreement late last week to reopen the government until Feb. 15. If all parties don’t agree on how to move forward with the budget, the government could again shut down.

What’s the background?

The longest partial U.S. government shutdown in history was triggered by ongoing debate over funding for a wall along the U.S.-Mexico border. President Trump last week reached a deal with Congress to fund the government for three weeks in order to continue the debate, temporarily ending the shutdown.

The CBO, a nonpartisan government organization founded as part of the Congressional Budget and Impoundment Control Act of 1974, produces research related to the congressional budget process.

The CBO says the latest government shutdown cost the U.S. economy $11 billion — about $3 billion in lost growth in the fourth quarter of 2018, and $8 billion in lost growth in the first quarter of 2019.

Although the CBO expects the economy to make gains in the coming quarters, it warns that $3 billion in lost growth won’t be recovered because of the shutdown. The CBO is forecasting first-quarter 2019 GDP growth of 2.1%, down from previous estimates of 2.5% growth.

Why does this matter?

The longest U.S. partial government shutdown in history was already cause for concern before the CBO report.

For example, the White House Council of Economic Advisers estimated that the shutdown reduced quarterly economic growth by 0.13 percentage points each week it continued. And the shutdown’s lingering effects will likely fuel ongoing debate about the health of the U.S. economy.

Many businesses were affected by agency closures and delays during the shutdown. Here’s a look at three government agencies dealing with America’s businesses that were affected by the shutdown:

Securities and Exchange Commission: The SEC was unable to proceed with initial public offering filings during the shutdown, affecting businesses’ and investors’ plans.
Small Business Administration: The SBA stopped reviewing loans that many small businesses rely upon during the shutdown, likely causing delays in small businesses’ plans to improve or expand.
Treasury Department: The Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau was unable to approve new labels and launches for America’s craft breweries during the shutdown, causing delays in new beers hitting the market.

Because the government could again shut down if the White House and Congress are unable to come to an agreement by Feb. 15, uncertainty lingers for many U.S. businesses.

How could this impact you?

The main message from the latest CBO report is that the partial government shutdown did lasting economic damage to the U.S. economy. However, it also impacted Americans’ daily lives by leading to uncertainty over a range of areas, including healthcare coverage and mortgage and rent payments.

In addition, as debate continues ahead of the Feb. 15 budget deadline, many Americans might feel unsure about what to expect or how to plan.

What’s next?

The government has fully reopened while Congress and the White House continue to debate funding for a U.S.-Mexico border wall.

It’s unclear whether another shutdown will happen if the two parties don’t come to a funding agreement by Feb. 15. According to a report in the Wall Street Journal, analysts at Capital Economics predict that Trump would be unlikely to trigger another government shutdown because of the unpopularity of the most recent battle. Regardless, lingering uncertainty could affect the U.S. economy well into 2019.

About the author: Paris Ward is a content strategist at Credit Karma, providing readers with the latest news that will aid their financial progress. She has more than a decade of experience as a writer and editor and holds a bachelor’s… Read more.