Counting the cost of the US government shutdown

The partial closure of the US government has become the country's longest-ever shutdown. The Federal Reserve says its immediate impact on the economy is negligible, but an extended shutdown could prove a drag.

The United States' partial government shutdown entered its twenty-second day on Saturday, beating the 21-day shutdown during the Clinton administration to become the country's longest ever .

About 800,000 federal workers are affected by the shutdown, and many have missed their first paychecks of the year. But apart from the personal hardship, the wider impact of the shutdown on the US economy seems limited.

Speaking at the Economic Club of Washington on Thursday, US Federal Reserve Chairman Jerome Powell said that past government shutdowns didn't last long and, hence, hadn't left a mark on the economy.

"A longer shutdown is something we have not had," Powell, however, also said. "If we have an extended shutdown, I do think that it would show up in the data pretty clearly."

Powell noted that for the time being the US' central bank would have only limited data available to make predictions on the economy, especially about monetary policy decisions.

About one-quarter of the federal government has been shut down since December 22 because of a dispute over $5.7 billion (€4.95 billion) in funding for President Donald Trump's US-Mexico border wall. Trump's dispute with Democrats is showing no signs of ending after the president walked out of a negotiating session with Democratic leaders, who continue to reject his demand for funding.

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Only peanuts

Meanwhile, data coming out of the White House suggest that the shutdown could reduce the United States' total economic output by an estimated tenth of a percentage point every two weeks. For context, the US economy is forecast to have grown by about 2.8 percent in the fourth quarter of 2018.

Kevin Hassett, chairman of the White House Council of Economic Advisors, believes that the US unemployment figures could also rise this month, because federal employees furloughed during the shutdown are considered unemployed.

"So when we see the January jobs number, it could be a big negative," Hassett told reporters earlier this month, adding that those workers would, however, ultimately get paid.

Some economists also expect to see a big pullback in spending if government employees can't receive their paychecks. On balance though, they echo the Fed's view that the shutdown so far has had a minor impact on the economy.

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According to Goldman Sachs analysts, the ongoing shutdown will affect gross domestic product (GDP) by about 0.07 percentage points each week.

"We do not expect the partial shutdown to have substantial effects on financial markets. We note that the shutdown is unrelated to the debt limit and has no implications for Treasury financing," the US investment bank said in a note.

Robert Dye, chairman of the economic advisory committee of the American Bankers Association, said it was still difficult to "put a number on" the cost of the shutdown. "The shutdown that we've had so far, particularly because it was over the holidays, is a fairly minor drag on the overall economy," he said, adding that if it were to extend into another paycheck or two, it would exert a "meaningful drag" on the economy.

Already, the shutdown is affecting projections for US growth this year. On Thursday, JPMorgan Chase's chief US economist, Michael Feroli, cut his first-quarter growth forecast to a 2 percent annualized pace from 2.25 percent, citing the shutdown.

US government shutdowns: A chronology

Sundown shutdown

As midnight approaches on September 30 of each year, it's go time for Congress: approve a budget or shut down government operations. Originally, Article I, Section 9 of the Constitution required lawmakers to approve the budget. Honing it further in 1870, the Antideficiency Act targeted agencies that spent money without asking. But meeting deadlines was a chronic problem. That is, until the 1980s.

US government shutdowns: A chronology

No money, no pay, no work

At the behest of President Jimmy Carter, the US attorney general revisited the Antideficiency Act in 1980 to answer the question: "Without a budget, are government employees required to work?" According to Benjamin Civiletti's legal opinion, no money meant no work. Carter's presidency saw only small shutdowns, but the new interpretation of the law turned shutdowns into a negotiating tactic.

US government shutdowns: A chronology

Ronald Reagan and the first shutdown

The first real shutdown — over 240,000 workers furloughed, more than $80 million (€65 million) down the drain — occurred in November 1981. Still in his early days, President Ronald Reagan refused to sign a budget without billions in tax cuts. The Republican-controlled Senate and the Democrat-controlled House found a solution by the next day. This happened seven more times by his last year in 1989.

US government shutdowns: A chronology

Bill Clinton and the rise of the partisan shutdown

Budget impasses were largely drama-free until 1995, when President Bill Clinton faced off against Senate Majority Leader Bob Dole and House Speaker Newt Gingrich (pictured left). The Republican-led Congress wanted a balanced budget within seven years, higher Medicare premiums and rollbacks on environment regulations. It took 27 days in total to strike a deal. The cost: at least $1 billion.

US government shutdowns: A chronology

A game for Congress, a headache for the agencies

Many departments such as the military, national security and any deemed essential to the protection of life continue working during shutdowns. But agencies such as the Internal Revenue Service, the Food and Drug Administration and the Centers for Disease Control and Prevention must cease operations. This results in delays on tax decisions, food inspection and disease research among other problems.

US government shutdowns: A chronology

Barack Obama and Congress on Cruz-control

The next major shutdown came in 2013 under President Barack Obama. His Affordable Health Care Act — or Obamacare — faced stark opposition from conservative House Republicans. Led by Senator Ted Cruz, the group pushed for drastic curbs on the health care act in exchange for raising the debt ceiling. The 18-day shutdown resulted in the furlough of some 850,000 workers. The cost: $24 billion.

US government shutdowns: A chronology

A shutdown lasting years?

The latest shutdown, which lasted 35 days, was the longest in history. Hundreds of federal workers went without paychecks. Despite the disruption, President Donald Trump refused to budge on his insistence that funding for the Mexico border wall be included in the budget. In fact, the president had said he was prepared for the impasse to go on for years — before he gave in and reopened government.

US government shutdowns: A chronology

Cost of playing politics

The prohibitive cost of shutting down some government operations has not tamed the trend. Washington loses millions not just in revenue, but also in back pay, even though furloughed employees stay at home. So, time lost, work lost — and money lost. According to ratings agency Standard and Poor's, the current rate for a shutdown will cost the US roughly $6 billion per week.

US government shutdowns: A chronology

Shutdowns contributing to distrust?

But the biggest loser is not the economy, or the party that makes the most concessions. Arguably, it's the government itself. According to a Gallup poll in the aftermath of the 2013 shutdown, public dissatisfaction with the government in general rose to 33 percent. The previous all-time high regarding political dysfunction was 26 percent during the Watergate scandal.

No recession fears

Despite the uncertainty surrounding the government shutdown, Fed chair Jerome Powell doesn't expect the US economy to slip into a recession in 2019.

"I don't see a recession," he told the Washington Club gathering, explaining further that two key risk factors for recession, which were inflationary overheating and asset bubbles, didn't exist. "The principal worry I would have is global growth," he said. "It's a tightly integrated global economy and financial markets and we will feel that."

The Fed, which is self-funded, is not affected by the partial shutdown. But the US Department of Commerce, which produces some important economic reports, has been hit. The shutdown already has delayed the release of the monthly foreign trade statistics, which were due out on Tuesday. And more key data on the state of the US economy, such as fourth quarter economic growth, consumer spending and personal income, are also unlikely to be released.

Emergency powers

Meanwhile, Donald Trump is planning to declare a national emergency, saying he would be "absolutely right" to resort to the measure in order to break the impasse with the congressional Democrats.

The move could trigger a backlash among lawmakers as well as court challenges. But Trump told reporters: "The lawyers have so advised me. I'm not prepared to do that yet. But if I have to, I will."

In a sign that the American president might soon make a decision on that, he canceled a trip to the World Economic Forum gathering in Davos, Switzerland, which was planned for later this month.

"Because of the Democrats intransigence on Border Security and the great importance of Safety for our Nation, I am respectfully cancelling my very important trip," Trump wrote on social media on Thursday.

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