Even though much of the federal government is open, the impact of the partial shutdown is rippling through the business world.
Contractors for the Federal Emergency Management Agency have been ordered to stop working. The Food and Drug Administration isn’t taking applications for new drug approvals. Skeletal staffing at the Securities and Exchange Commission is starting to impede its reviews of takeover deals and corporate stock offerings.
None of this is life and death, of course, and isn’t nearly as bad as the economic pain being inflicted on 800,000 federal workers and millions of Americans who rely on federal programs that are running out of money.
But if the shutdown continues (Thursday will be Day 26, and it’s already the longest stoppage in history), there will be significant consequences for businesses and investors as the economy takes a mounting hit from lost spending and investing by furloughed workers and contractors, and other knock-on effects.
“Someone estimated that if it goes on for the whole quarter, it can reduce growth to zero,” Jamie Dimon, CEO of New York banking giant JPMorgan Chase, told reporters Tuesday on a media call to discuss fourth-quarter results. “We just have to deal with that. It's more of a political issue than anything else.”
For the economy to post no growth probably would require the standoff to drag on for more than the first quarter, but not that much more. Kevin Hassett, chairman of the Council of Economic Advisers, says the shutdown cuts quarterly economic growth by 0.13 percentage points each week it goes on. That’s double the White House’s previous calculation. The economy had been expected to grow about 2.4 percent this year, down from an estimated 3.1 percent in 2018.
The key is consumer spending, which accounts for about two-thirds of GDP. In a survey taken before government operations began winding down, the Conference Board found that consumer confidence dipped in December, but the organization’s widely followed index remains at a level not seen since before the dot-com recession in 2001.
We’ll get another reading of consumer sentiment, from the University of Michigan’s survey, on Friday. That report isn’t affected by the federal shutdown, but other key releases have been, including retail sales from the Commerce Department (which was delayed Wednesday) and Thursday’s data on housing starts and permits. Other government departments that issue important statistics include Agriculture, Treasury, and Housing and Urban Development.
That makes things tricky for the Federal Reserve as it tries to assess just how much the economy may be losing strength amid slowdowns in China and Europe.
“It does make it more difficult, and it’s a bad time to do it given we are getting conflicting signals,” Eric Rosengren, president of the Federal Reserve Bank of Boston, told Globe reporters and editors last week.
For now, the lack of data isn’t a critical issue.
“The Fed doesn't base its interest rate decisions on a single data release, and in any case policy makers have made pretty clear that after last month's interest rate increase, they plan to remain on hold for a while,” said Peter Ireland, a professor of economics at Boston College and a research associate at the National Bureau of Economic Research.
“So long as the shutdown ends soon, the Fed will get all the information it needs to make policy successfully in 2019.”
More important, Ireland said in an e-mail Tuesday, “is whether the shutdown will drag on and on to the point where it becomes a major source of economic uncertainty and thereby threatens the ongoing expansion.”
The clock is ticking. It’s in everyone’s best interest — not just federal workers, but all consumers, CEOs, investors, even economists — that this nonsense gets resolved soon.