Government shutdown: Economic cost to total $11 billion, CBO says.
The 35-day government shutdown wiped out $11 billion in economic activity, most of which will be recouped, but the episode will noticeably reduce economic growth in the first quarter, the Congressional Budget Office said Monday.
The shutdown, the longest in U.S. history, reduced the nation’s gross domestic product by $3 billion in the fourth quarter of 2018 and $8 billion in the current quarter, CBO estimates. As a result, inflation-adjusted GDP growth will be an annualized 0.2 percentage points lower in the fourth quarter and 0.4 percentage points lower in the first quarter, CBO said.
Many economists now estimate the economy grew about 2.5 percent at an annual rate in the fourth quarter and will expand at about a 2 percent pace in the current quarter.
The shutdown curtailed economic activity by erasing furloughed federal workers’ output, delaying federal spending on goods and services, and curbing the purchases of federal workers and contractors. About 800,000 federal workers were affected by the shutdown, with about half furloughed and the remainder forced to work without pay. The partial shutdown lasted from Dec. 22 to Jan. 25.
Yet the episode will boost GDP growth in the second quarter by a percentage point as the government and its employees make up for the spending they put off.
While most of the losses will be recovered, about $3 billion are permanently wiped out, the agency said. For example, while some of federal workers’ retail purchases will simply be deferred, others such as restaurant meals won’t be. And federal employees will not make up most of the hours they didn’t put in.
The five-week shutdown delayed about $18 billion in federal spending on employee salaries and the purchase of goods and services, CBO said.
CBO says it didn’t estimate other less direct effects of the shutdown, such as businesses that couldn’t get federal permits or loans.
“Such factors were probably beginning to lead firms to postpone investment and hiring decisions,” CBO said. The negative effects of such hurdles would have become more significant if the shutdown had lasted more than five weeks, the agency said.