The current federal shutdown’s impact is widening beyond industries closely associated with the government, potentially dragging on the highly touted economic growth of the Trump administration.
The Internal Revenue Service, Department of Agriculture, Small Business Administration, Department of Commerce, and several other federal departments all provide services crucial to businesses in several industries, including housing, lending, farming, and even craft beer brewing.
That could end up impacting economic growth touted by President Trump as a key component of his administration.
In a call with reporters on Tuesday afternoon, Kevin Hassett, the chairman of the Council of Economic Advisers, said that his office of the White House revised up the economic effects of the partial shutdown. Instead of losing a tenth of a percentage point in annual economic growth per two weeks, as the CEA originally estimated, Hassett said that it’s now thought the shutdown costs a tenth of a percentage point per two weeks.
“If this thing drags on then … all those kinds of things could result in spillover effects that we might see in the data,” said Hassett, who added that independent analyses contributed to the upward revision in the negative impact the shutdown could have on the economy.
Those spillover effects include disruption of government services that businesses rely on for their core function, as well as government contractors that now must either furlough or lay off their workers. “We’ve been watching the actual effects and noticing the impact that we see on government contractors is bigger than the [CEA] staff rule of thumb anticipated,” continued Hassett.
The Small Business Administration’s loan programs, which direct federal money through banks and other private institutions, have been frozen. Together the SBA’s two major loan programs extended approximately $6.4 billion to small businesses in 2018. The government lends to small businesses in part due to the fact that small-to-medium-sized businesses on the whole contribute more jobs to the economy than major companies, while facing a lending gap in financing from banks.
The small business loan market has grown in recent years, but SBA’s programs aim to fill gaps in financing for veteran, woman, and minority-owned businesses.
Similar loan programs from the USDA specifically aimed at farmers and rural development have also been frozen.
Private sector lending programs reliant on the Internal Revenue Service for crucial data on their borrowers also saw disruption during the shutdown, though the Trump administration took extraordinary measures last week to alleviate pain felt by industries.
Part of the administration’s effort includes bringing back over half the IRS’s employees to process tax returns and issue refunds during filing season.
It also includes re-activating the tax agency’s income verification service, which consumer lenders, especially mortgage companies, use to help determine creditworthiness.
The system creaks under normal circumstances — it relies largely on fax imaging, an arguably outdated technology — but was considered important enough for senior officials at the Treasury Department to take the unusual step of redirecting revenue from industry user fees to return staff to work on processing. The transcripts provided by the IRS, with authorization from the taxpayer whose information is handed over, allow companies to verify the information given to them when determining whether or not to make a loan to a business, individual, or home buyer.
Another key verification service the IRS provides, tax ID numbers, also experienced upheaval during the partial lapse in funding. Though automated online tax ID applications may continue unhindered — much of the IRS’s online functions are automated and may be unaffected by the shutdown — processing the shift in ownership or closure of a business to let the IRS know a business owner no longer owes those taxes could be more complicated.
Other industries ranging from fishing to brewing, to corporate mergers and acquisitions and initial public offerings have also been hit by the lapse in government functions. A Washington-based brewery took the unusual step of suing the federal government, arguing that its First Amendment rights were being violated because the bureau within the Treasury Department cannot approve its keg labels for sale during the shutdown.
While shutdowns historically have little lasting effect on the overall U.S. economy, the combined cascading effects for businesses and individuals could add up, especially if the shutdown continues its historic march as the longest in U.S. history.
S&P Global, a financial and economic research company, estimated the cost of the shutdown would exceed that of Trump’s $5.7 billion border wall request by the end of next week. The research and ratings agency also warned that the economic impact will widen if the shutdown continues.
“How big a jolt a shutdown causes the economy depends on how long the government is closed,” S&P analysts wrote. “The longer this shutdown drags on, the more collateral damage the economy will suffer.”
But it could take some time to fully realize the extent of those effects. Several government offices, including the CEA itself, responsible for economic data collection, are either shuttered or significantly understaffed during the shutdown.
During Tuesday’s call Hassett also walked back comments about furloughed employees, saying they were made earlier in the shutdown before paychecks were missed, and added that one of his own staffers now has to drive a rideshare to make ends meet.
The chief Trump administration economist said that he would keep a close eye on secondary economic effects from the shutdown, like those service and contractor disruptions, and make more revisions to the economic outlook as necessary. But he added that those effects are “less important than the microhardships” individual workers face.
