The economic impact of a government shutdown

With the odds of a closure growing, economists are cranking out estimates of the possible financial blow.

By The Fiscal Times Sep 30, 2013 1:11PM
Image: Washington, D.C. (© Corbis)By Josh BoakThe Fiscal Times logo

So a government shutdown is supposed to crush the economy. Every major player has sounded alarms about the downturn that happens without a spending measure in place by Monday night. It seems to be the one item on which President Obama; House Speaker John Boehner, R-Ohio; and Sen. Ted Cruz, R-Texas, all agree.

With the odds of the government closing, economists are cranking out their estimates of the possible financial impact. Since House Republicans passed their plan -- which temporarily funds the government but eliminates Obamacare -- the stock market has steadily plunged, with the Standard & Poor's 500 Index ($INX) index off by 1.77%.

Forecasting company Macroeconomic Advisers based its projections on a two-week government shutdown causing 36% of federal employees to go temporarily without a paycheck. That translates into a 0.3% drop in the fourth-quarter gross domestic product. By way of comparison, that's slightly better than the quarterly impact of the sequestration budget cuts, according to Congressional Budget Office projections.

But Macroeconomic Advisers assumes that the government would then get back on track and that economic output would rebound in the first quarter of 2014 by 0.3%.

Mark Zandi, chief economist at Moody's Analytics, told the Senate Banking Committee this week that a three to four-week shutdown would lop 1.4% off his projected 2.5% growth this quarter.

"And this likely understates the economic fallout, as it does not fully account for the impact of such a lengthy shutdown on consumer, business and investor psychology," Zandi told lawmakers.

Scott Anderson, chief economist at the Bank of the West, pegs the impact of a weeklong shutdown at 0.2% of fourth-quarter GDP.

"If a government shutdown were to drag on longer, say a month or so, the damage estimate increases into the 1.5 percentage point range," Anderson said in a Friday client note. "Can you say economic stagnation? Longer than a month and GDP growth likely contracts in the fourth quarter and the risks rise significantly. It's a scenario that at best delays any economic acceleration and at worst leads us down a path toward another recession."

Josh Boak is the Deputy DC Bureau Chief at The Fiscal Times. Subscribe to The Fiscal Times' FREE newsletter.

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15Comments
Sep 30, 2013 3:01PM
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And now the imbecile Obama floats a trial balloon to see if he can get away with raising the debt ceiling without Congressional authority.  I say go ahead a try, the Impeachment vote will happen within hours of him trying it.

The arrogance of Obama is amazing.  The debt ceiling MUST not be raised without massive budget cuts in return and of course the defunding of Obamacare.  

When the people that vote democrat in return for tax payer dollars stop getting their checks, real reform can begin.  Of course we will have to fire the leech class enablers...
Oct 1, 2013 3:39PM
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1863-1920 HAD GREAT ECONOMIC GROWTH WITH A VERY SMALL GOVERNMENT AND AS LONG AS THIS GOVERNMENT STAYS SHUT DOWN THE BETTER FOR THE ECONOMY

Oct 1, 2013 8:03AM
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A SHUT DOWN IS GOOD, IT BRINGS US BACK TO REALITY AND SHAKES OUT THE LIBERAL LEECHES. OUR GOVERNMENT STARTED SMALL AND THE PEOPLE DID FINE. GOVERNMENT IS TO LARGE AND LOADED WITH HANDOUTS TO EVERYONE ON THE BACKS OF HARD WORKING AMERICANS. PEOPLE WILL CONTINUE TO LIVE AND THE LIBERAL LEECHES WOULD BE FORCE TO LIVE AND WORK LIKE ALL OTHERS.
Oct 1, 2013 11:20AM
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Well I guess the tea party is running the house of reps. Let's put aside the law of the land or we will take our marbles and go home. While were at it ,let's  put aside any law we don't like  .These are not leaders of our country they are children which have temper tantrums if they don't get their way.

I believe the time has come to get rid of these babies,and while were at it lets get a true leader for the House of representatives. 

Oct 1, 2013 5:31PM
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The poem was written by a MARINE CORPS Officer (ANON).

 

THE BATTLING BOYS OF BENGHAZI??

We're the battling boys of Benghazi

No fame, no glory, no paparazzi.
Just a fiery death in a blazing hell

Defending our country we loved so well.
It wasn't our job, but we answered the call,

fought to the Consulate and scaled the wall.

We pulled twenty countrymen from the jaws of fate


Led them to safety, and stood at the gate.

Just the two of us, and foes by the score,

But we stood fast to bar the door.
Three calls for reinforcement, but all were denied,

So we fought, and we fought, and we fought till we died.
We gave our all for our Uncle Sam,
But barack obama didn't give a damn.

Just two dead SEALS who carried the load.

No thanks to us.........we were just

"Bumps In The Road".

Please circulate this email....please keep it going so it will reach every American with a
computer. Something has to be done with the incompetent people who literally sat

there in the White House and watched the Seals execution on live streaming video

and did absolutely nothing. The Obama Administration, including former Secretary of

State Clinton, must be held accountable and that will not happen unless ALL of US demand it.

Oct 1, 2013 2:31PM
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It was Lowering Corporate taxes and not "enforcing" some Regulations that got us into a world of shidt the last time....My God some of the Conservative "nutballs" are stupid.

 

Where is a lot of those Corporate Holdings?...Yup those people are Really Americans ???

Oct 1, 2013 11:59AM
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LET'S SEE......For Years 1998-2001, Surpluses reduced Debt held by the Public.

 

THE DEBT CEILING LIMIT WAS RAISED "5 TIMES" AFTER 2001, up until 2009.

I think the dates are quite close..

June 2002, Dec 2002, May 2003, Mar 2006, Sep 2007.

 

You Neo-Nazi, Republican, Conservative, Teabaggers can jump up and down, DEFLECT from the truth, and revise History for your little pet agendas...

BUT WHAT WAS YOUR POSITION THEN ?? OR WHERE were you when it happened willy-nilly during those years....And BTW, who was the President, hmmmm?? 

Oct 1, 2013 10:50AM
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I just love "revisionist" History...People can say just about anything, and many will buy it... !!!
Sep 30, 2013 11:46PM
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I thought maybe Reagan and even the Bush's, maybe just one of them raised the debt ceiling before??

Okay for them but not others.

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