The government shutdown is hurting the U.S. economy more than the Trump administration originally thought.
“The Trump administration had initially estimated the shutdown would cost the economy 0.1 percentage point in growth every two weeks that employees were without pay,” Reuters reported. “But on Tuesday, there was an updated figure: 0.13 percentage points every week because of the impact of work left undone by 380,000 furloughed employees as well as work left aside by federal contractors,” a White House official said.
In a statement to reporters, the official broke it down: “That includes the effect of work not done by 380,000 furloughed Federal workers (0.08 p.p. per week) plus the work not done by Federal contractors (0.05 p.p. per week),” the official said.
Given that the 0.1% hit on growth happens every week instead of every two weeks, the cost of the shutdown has essentially doubled.
“The new estimate is a bit higher than we have penciled in but it underlines how uncertain the impact is,” Capital Economics Senior U.S. Economist Michael Pearce told Yahoo Finance.
He added: “Either way, however, Congress has already approved back pay for federal workers, so I suspect the shutdown will only have a significant bearing on first quarter GDP if it drags on beyond the end of this month.”
The ultimate cost of the shutdown could balloon
Pearce noted that “the bigger issue is what this standoff tells us about the disputes still to come this year, including over the debt ceiling … and the FY2020 budget.”
“Failure to reach a deal on either would have much bigger implications for the economy.”
JPMorgan Chase CEO Jamie Dimon — a bull on the U.S. economy — told reporters on a media call that “someone estimated that if it goes on for the whole quarter, it can reduce growth to zero.”
President Donald Trump has thus far not indicated willingness to compromise or be moved by the cost of the shutdown. Speaking with reporters on Monday evening, he said that he would “never back down” from the fight.
But even if “there are various pain points that will be felt shortly in coming days and weeks,” analysts at Bank of America Merrill Lynch (BAML) wrote last week, “all could lead to a compromise.”
Aarthi is a writer for Yahoo Finance. Follow her on Twitter @aarthiswami.
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