Experts fear for U.S. economy as shutdown continues

The White House in Washington, D.C.Image: The White House in Washington, D.C.
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The current partial U.S. government shutdown is now the longest in U.S. history — and that has a growing number of experts worried about the economy.

The latest U.S. government shutdown began on Dec. 22, with Congress unable to pass a 2019 budget due to ongoing debate over funding a wall at the U.S.-Mexico border.

Now in its 28th day, there’s no indication that the Trump Administration and Congress are nearing any agreement. And the ripple effects of some 800,000 government employees continuing to go unpaid may soon have broader implications for the U.S. economy, particularly in the housing and automotive markets, according to experts.

The White House Council of Economic Advisers, for one, is warning that the U.S. economy loses 0.13% of its quarterly economic growth every week the shutdown continues. Other analysts project that the longer the shutdown lasts, the more dire the consequences will be.

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What’s the background?

The current partial U.S. government shutdown is largely the result of ongoing debate over funding for a wall along the U.S.-Mexico border. President Trump, who campaigned in part on a promise to build a wall at the border, has refused to sign any budget measure without the $5.6 billion he requested in border security funding to build a wall. Although the House made progress toward passing a final 2019 budget, the border wall funding issue was left unresolved: The House measure included funding for a border wall, while Senate proposals did not.

This latest U.S. government shutdown became the longest in American history when it surpassed the previous record of 21 days, set in 1996 during the Clinton Administration. For context, that 21-day shutdown from December 1995 to January 1996 — along with a more brief shutdown that preceded it in November 1995 — resulted in the U.S. economy losing more than $1.4 billion in fiscal year 1996, according to an estimate by the Office of Management and Budget.

Why does this matter?

The ongoing shutdown has consequences beyond the obvious impacts on the 800,000 or so federal workers who aren’t getting paid (and therefore can’t pay their bills). It’s also affecting everything from government programs like the U.S. Department of Agriculture’s home loan program to the labeling and bottling of new craft beer, the Wall Street Journal reported. The Internal Revenue Service says the shutdown won’t stop the agency from processing Americans’ tax returns — but the 46,000 IRS workers recently recalled from furlough to do that work will not be paid until the government reopens, the New York Times noted. And the shutdown might affect your ability to report identity theft with the FTC, since identitytheft.gov has been taken offline until the government starts receiving funds again

The shutdown also comes at a time when the debate over the health of the national economy is ramping up. Some data already indicate that mortgage applications may have slowed due to uncertainty over the shutdown, and the latest Federal Reserve “beige book” — a report from the central bank on the nation’s current economic mood — indicates a decline in optimism.

What’s more, the warning from the White House Council of Economic Advisers that the shutdown causes a 0.13% loss in quarterly economic growth each week means that, over the last 28 days, the shutdown may have led to a little over a half-percentage point less growth for the economy in Q1. During Q1 2018, economic growth was 2.2% for the quarter, so losing at least 0.5% of growth could be a significant dent in the economy’s momentum.

In short, the longer the shutdown drags on, the greater the risk that this uncertainty will have a bigger impact on the economy as a whole.

What’s next?

President Trump signed legislation on Wednesday promising back pay for furloughed federal workers once the shutdown ends. But that can only be so comforting, given the unknown of the shutdown timeline.

If the shutdown continues through Jan. 25, many federal workers will miss a second full paycheck, making it increasingly difficult for many to afford mortgage and rent payments.

Looking ahead to February, the shutdown could also impact the availability of funds for the upcoming 2020 U.S. Census — a once-a-decade count of the U.S. population that is crucial for determining how federal funds are allocated to state and local governments.

While you may feel little sense of control over the ongoing shutdown and its impact on the nation’s economy — or your own — you can contact members of Congress to make your voice heard about the situation.


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.