Government shutdown may be over, but impact on economy could last

Averted government shutdown could have lasting impact on economy

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Averted government shutdown could have lasting impact on economy

Friday brought what appeared to be the answer to one 35–day–long question: When will the government shutdown be over?

But for economists, an important follow–up question remains: What impact will that shutdown ultimately have on the economy?

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Traditionally, government shutdowns have caused momentary economic downturns, but the impact typically has been fleeting: Federal workers typically are given back pay for the time they were furloughed and make up for lost spending when they get that money. They’ll get back pay for this shutdown, too.

Still, no government shutdown has ever lasted this long. And economists worry that a combination of factors — China’s slower growth, the chaos surrounding England’s departure from the European Union and trade wars between the U.S. and its allies could combine to push the United States into at least a downturn, or, at most, a recession.

“Each is more kindling underneath a potentially good-sized fire,” said Ned Hill, an economist at The Ohio State University.

Hill said that the trickle-down effect of federal employees missing paychecks has affected landlords, retailers, and creditors — a political standoff with potentially larger consequences.

“Can this trigger a recession?” he said. “My answer is it increases the odds.”

He said even though Friday saw a resolution, it’s a short–term one, because the deal struck between President Donald Trump and Congress will last only through mid–February. The situation “really hasn’t gone away. Instead, we’ve got a three–week hold which continues the uncertainty in the market.”

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“Would a sane person think everything will be hunky and dory in three weeks?” he asked, saying the temporary nature of the deal “hurts consumer confidence and hurts investment.”

“There’s still an awful lot of economic uncertainty out there because of the current turbulence in policy,” he said.

Richard Amos, 54, of Reynoldsburg, is all too aware of that. A TSA employee at John Glenn Columbus International Airport, he loves his job and had worked without pay for the five weeks of the shutdown. He was relieved when Trump announced an end to the shutdown, but wary that he might be in the same position in three weeks.

“We’re grateful, yeah,” he said. “We have money to pay some bills and we’re grateful for that, we all are….but how long is this going to last before we have another shutdown?”

The uncertainty makes him and other federal workers wary. He was dismayed by suggestions from Commerce Secretary Wilbur Ross that the 800,000 affected workers consider taking out a loan. “People are already in debt,” Amos said.

Stan Veuger, a resident scholar at the conservative American Enterprise Institute, said businesses affected by the shutdown — a bar near a Coast Guard base, for example — won’t get those profits back. Nor will some federal contractors who will likely not get back pay for lost time. Sen. Sherrod Brown, D-Ohio, introduced a bill to do so, but it’s unclear whether that bill will pass.

Beyond that, “it makes working for the federal government less attractive,” he said. “It makes recruiting harder. It makes it harder to get good people.”

It’s costs still have yet to be fully known. Veuger said some federal employees will have to work overtime to catch up for lost time, meaning that the taxpayer will have to pay for work not done as well as overtime. A study by Sentier Research found that furloughed workers alone are owed about $6 billion in back pay.

Still, Veuger said, with the government reopening, two quarters of negative GDP growth – or a recession – seems “unlikely.”

“Hopefully they won’t do this again,” he said.

Josh Bivens, an economist at the left-leaning Economic Policy Institute, said that while federal workers eventually will receive back pay, contractors will not.

“That spending is gone forever,” he said, speaking a few days before the shutdown’s end.

He said that even a few missed paychecks matter. Some “do financially destructive stuff” such as take out high-interest, short-term loans that put people in a cycle of borrowing. Those kind of moves are harder to recover from, he said.

Still, he said, despite the distress the shutdown caused to a lot of households, it won’t likely show on a macroeconomic level.

“I think there will be a tiny downward blip in the first quarter, but I think we’ll get some of that back as government employees get back pay and spend money in the second quarter,” he said.

That is, if the government doesn’t close again in three weeks.

“If they fumble the ball and we’re in a shutdown three weeks from now, it won’t be just federal employees and government contractors that will ratchet down the spending,” he said. “That’s the kind of profound policy failure that could make most of the country start to think, ‘I don’t know, maybe I shouldn’t spend so much money. I’m not confident in this group of policy makers to keep us out of the recession.’”

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