- The federal government shutdown is hurting the US economy, most economists agree.
- The White House thinks that the pain is even worse than originally thought.
- A White House official told INSIDER that after a change to the internal model, the Trump administration now estimates the shutdown is taking 0.13 percentage points off of quarterly GDP every week.
- The model change incorporated the negative effects for federal contractors.
- The new White House estimate is much higher than the general Wall Street consensus that the shutdown is shaving 0.05 points off of quarterly GDP every week.
The US economy is taking a hit from the partial shutdown of the federal government and even the White House thinks it may be even worse than originally estimated.
After a tweak to the internal White House model, the administration now expects that the shutdown will deduct 0.13 percentage points from quarterly GDP for every week the closure persists, a White House official told INSIDER.
Most Wall Street economists believe the shutdown will shave off 0.05 percentage points from quarterly GDP growth per week, though some have bumped up their estimates recently. This means that the White House number is more than twice as pessimistic as the consensus.
Originally the model only included the lost productivity from 380,000 federal workers placed on furlough.
But now the model also incorporates the downsides caused by the loss of revenue to federal contractors (third-party companies that are paid by the shut down agencies for services), according to the official.
The new model found that 0.08 percentage points of GDP is shaved off every week due to the furlough, while 0.05 points is lost due to lost work from federal contractors. This means that the 25-day shutdown has knocked off roughly 0.25 points from first quarter GDP so far.
Given the current state of negotiations, the economic hit from the shutdown could continue for a long time.
Most economists also estimate that the economic pain from the shutdown will increase as key federal programs experience disruptions. For instance, the economic fallout would be devastating if SNAP benefits, also known as food stamps, run dry at the end of February.
According to Ian Shepherdson, chief economist at Pantheon Macroeconomics, if the shutdown continues through March then GDP could go negative for the first quarter. Additionally,JPMorgan CEO Jamie Dimon warned that the shutdown could have major negative consequences for the US.
Neil Bradley, the chief policy office at the US Chamber of Commerce, also cautioned the president and congressional lawmakers that the shutdown was causing chaos for consumers and companies.
“The shutdown is harming the American people, the business community, and the economy,” Bradley wrote in a letter on January 8. “The Chamber strongly urges Congress and the administration to resolve this impasse and reopen the government.”
Based on the White House revision, the pain that Bradley warned about could be even worse than expected.
- For more on the government shutdown’s effects:
- From airport lines to food inspections, here are all the ways the government shutdown is impacting the lives of average Americans
- Here’s what happens to Social Security and disability benefits during a government shutdown
- Some American food safety inspections aren’t happening due to the government shutdown, and it could mean more food-poisoning outbreaks
- Federal workers affected by the government shutdown have more than $US400 million in mortgage and rent payments due this month, and it could cause chaos for the US housing market
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