So far, the partial government shutdown for which President Trump said he’d be proud to take credit has caused only minimal harm to the $19.4 trillion U.S. economy he has worked to buoy.
The closing, which has left roughly 800,000 federal employees either furloughed or working without pay, prompted Bank of America to trim 10 basis points from its estimate of gross-domestic product growth in the last three months of 2018, lowering the projection to 2.8 percent.
The effect of the shutdown, which began Dec. 22 after Trump rejected proposals to fund the government that didn’t include $5.6 billion for a wall he promised during his campaign to build along the U.S. border with Mexico, will increase the longer it lasts, economists say.
“In addition to the direct drag to government consumption, we could see indirect effects from a temporary slowdown in consumption due to weaker spending from furloughed workers and delay in business investments,” said Joseph Song, an economist with the Charlotte, N.C.-based lender. “Further drag could come at the margin if a sustained shutdown leads to a decline in business and consumer sentiment and/or a decline in U.S. equity markets.”
Already, stores in the Washington, D.C., area have noted slower traffic as workers unsure when their next paycheck will arrive opt to conserve cash, while airline workers have cited delays in certification of new aircraft and pilot training and Food and Drug Administration reviews of new medications have slowed.
While Trump, who said in a fiery Oval Office meeting with Democratic leaders in December that he would gladly own the shutdown if it meant improving border security, he has deflected responsibility since.
A bill by the GOP-controlled House that funded the wall in December failed to gain traction in the Republican Senate, where Democrats hold a sizable minority.
Since then, Senate Majority Leader Mitch McConnell has declined to consider a bill from the House’s new Democratic majority that would reopen the government without paying for a barrier. A Wednesday meeting between House Speaker Nancy Pelosi, Senate Minority Leader Chuck Schumer, and administration officials ended with no deal when Trump walked out of the room after Pelosi again refused to pay for the wall.
Just left a meeting with Chuck and Nancy, a total waste of time. I asked what is going to happen in 30 days if I quickly open things up, are you going to approve Border Security which includes a Wall or Steel Barrier? Nancy said, NO. I said bye-bye, nothing else works!
— Donald J. Trump (@realDonaldTrump) January 9, 2019
“If the shutdown continues into March, funding lapses for food stamps could materially impact personal consumption and the cumulative drag from the shutdown could meaningfully cut growth in the first quarter, although some of it would be made up once the government reopens and back pay is released,” Song explained.
Federal Reserve Chairman Jerome Powell also downplayed the initial harm from the shutdown, though he, too, warned that it would increase over time.
“If we have an extended shutdown, I do think that would show up in the data,” said Powell, who acknowledged that the current shutdown hurts federal workers and other people who may be in need of government services that lapsed. “Government shutdowns don’t last very long; they typically don’t leave much of a mark on the economy.”
Colin Wilhelm contributed to this article.
