The true economic impact of the shutdown has just begun to reveal itself

Now that the longest government shutdown in U.S. history is officially over (for the time being, at least) and the dust is beginning to settle, we’re getting our first look at the cost of the shutdown on the economy.

A new report from the Congressional Budget Office shows that the shutdown likely cost the country $11 billion in economic activity over the last month.

The CBO estimates that the country’s gross domestic product will likely be down by $3 billion for the fourth quarter of 2018 compared to what it would have been had the government not shut down at the end of the year.

But given that the government shut down towards the end of December, the greater impact will be felt in the first quarter of this year. According to the CBO, the level of real GDP is expected to be $8 billion lower in the first quarter than it would have been if the government was open for business.

A new report from SP Global Ratings suggests a similar downturn in economic activity as a result of the shutdown. According to SP, the U.S. economy lost at least $6 billion dollars because of the shutdown, which SP notes is more than the $5.7 billion that the White House requested for the border wall that was the central cause of the shutdown itself.

“The longest partial shutdown in history, which started as a minor cold, began to feel like a nasty flu that had begun to spread across the states. And the overall cost is likely worse than what we had previously expected,” SP said in its report.

And while the CBO notes that some of the lost economic activity will likely be regained in future quarters, both the CBO and SP write that some of what was lost during the shutdown may never be recovered.

“Among those who experienced the largest and most direct negative effects are federal workers who faced delayed compensation and private-sector entities that lost business,” the CBO said. “Some of those private-sector entities will never recoup that lost income.”

SP agrees, noting that some of the direct costs from the shutdown are unrecoverable.

“In particular, economic activity from lost productivity from furloughed government and contract employees won’t be recovered. The direct hit to economic activity from furloughed workers is amplified by lost spending by furloughed government and contract workers due to lack of ready income,” SP notes. “Furloughed contract workers will not get back pay, so they are left trying to repair finances after losing five weeks of wages.”

The CBO also notes that there are some other consequences that will not likely be felt immediately, but will begin to show themselves in time.

“For example, some businesses could not obtain federal permits and certifications, and others faced reduced access to loans provided by the federal government. Such factors were probably beginning to lead firms to postpone investment and hiring decisions,” the CBO wrote.

“In addition, risks to the economy were becoming increasingly significant as the shutdown continued,” the CBO added. “Although their precise effects on economic output are uncertain, the negative effects of such factors would have become increasingly important if the partial shutdown had extended beyond five weeks.”

SP also notes that the shutdown may have lasting consequences on the government employees and contractors who were basically turned into pawns in what turned out to be a pointless political standoff.

“We did not consider the effect on morale of government workers who were required to work without pay. Even if they decided to show up to work (some, reportedly, have called in sick), we suspect that working in those conditions has lowered productivity rates for them as well,” SP said.

“It may also create a challenge for government agencies and contractors, when they want to hire them back,” SP continued. “With worries that Uncle Sam may leave them in the lurch, with bills to pay, the next time the government decides to close (which is all too frequent), these workers may decide to opt for a job in another industry that they feel has more job security.”

And with another potential shutdown looming in just a few weeks, those negative effects could come sooner rather than later.

“Although this shutdown has ended, little agreement on Capitol Hill will likely weigh on business confidence and financial market sentiments. For those workers who were living without a paycheck, revolving credit payments and credit scores may also take a hit,” SP said. “Although this funding battle has ended, the next one starts in a few weeks, which may reduce growth expectations if businesses and financial markets begin to expect that Congress and the president will repeat the experience again and again.”

Article source: https://www.housingwire.com/articles/48023-the-true-economic-impact-of-the-shutdown-has-just-begun-to-reveal-itself

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