Government shutdown would cost the US economy $1.8 billion a week, S&P says

Congress is flirting with a shutdown that would cost the US economy $1.8 billion for each week the government is closed, according to estimates by S&P Global Ratings.

“The shutdown, if it’s brief, wouldn’t be a disaster, but would still reduce some of the economic gains the US has felt from the reopening,” Beth Ann Bovino, chief US economist at S&P Global, wrote in a report Wednesday.

If no deal is reached before the end of the day Friday, the government would shut down. Democrats unveiled a deal on Thursday that would keep the government funded into mid-February, but it’s not clear if that agreement will successfully avoid the imminent shutdown.

Each week the government is closed would curtail fourth-quarter growth by about $1.8 billion annualized, or 0.11 percentage points of the $20 trillion American economy, S&P said. That estimate includes direct costs from furloughed, nonessential government workers as well as indirect costs such as canceled trips to shuttered national parks.

“Turning the government off and on comes with a cost,” Bovino wrote.

S&P notes that while some indirect costs can be recovered once the government reopens, the direct costs “would never be regained.”

In late 2018 and early 2019, the federal government shutdown for 35 days as Congress struggled to reach an agreement on funding. About $18 billion in federal spending was delayed during that closure and gross domestic output during the first quarter of 2019 was down by 0.2%, according to the Congressional Budget Office. Fourth-quarter 2018 GDP was also hurt by 0.1%.

Although there’s never a good time for a shutdown, this one would come at a tricky time for a US economy still attempting to recover from the shock of a pandemic that caused massive job losses and scrambled global supply chains.

A shutdown would “add more complications to a system already tangled up by supply-chain disruptions,” Bovino wrote.

In a phone interview, Bovino told CNN that the concern here is that a shutdown could delay the processing of paperwork by US Customs at key ports that are under severe strain right now.

Bovino added that a shutdown could add pressure to inflation because furloughed workers would not be productive but would still eventually get paid.

“This is just one more headache,” she said.

Congress faces another key deadline to raise the debt ceiling. Treasury Secretary Janet Yellen told lawmakers this week that failure to raise the debt limit would “eviscerate” the economic recovery. Yellen has said there is uncertainty whether the federal government could keep paying the bills beyond December 15.

Although it views a US default as unlikely, S&P warned such an event would be more disastrous than the implosion of Lehman Brothers in 2008.

“A shutdown would be a nuisance. If we’re swimming in the ocean, it’s a minnow,” Bovino told CNN, “as opposed to the debt ceiling, which is a shark.”

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