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Government Shutdown Cut Into Economic Growth, CBO Says

By: Jim Zarroli | NPR
Posted on: Monday, January 28, 2019

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The partial shutdown of the government reduced federal spending by about $3 billion and cut into overall U.S. economic growth, according to a report released Monday by the nonpartisan Congressional Budget Office.

The report says that because of the shutdown, which lasted from Dec. 22 through last Friday, about $18 billion in discretionary government spending was delayed. Most of the money will be spent later, now that the shutdown has ended.

As a result, the nation’s gross domestic product will be about 0.2 percentage points lower for the fourth quarter of 2018 and 0.4 percentage points lower during the first quarter of 2019 than it would have been, although part of that will be recouped later in the year.

CBO had projected first-quarter growth to be an annualized 2.5 percent, but including the effect of the shutdown, it’s estimated at 2.1 percent.

The report does not attempt to quantify the secondary effects of the shutdown on private-sector businesses, but called them “significant.”

“For example, some businesses could not obtain federal permits and certifications, and others faced reduced access to loans provided by the federal government. Such factors were probably beginning to lead firms to postpone investment and hiring decisions,” the report said.

Some of the affected private-sector businesses will never recoup the income they lost, CBO said.

It said “considerable uncertainty” exists about the shutdown’s economic impact.

“In particular, CBO is uncertain about how much discretionary spending was affected by the partial shutdown, how affected federal employees and contractors adjusted their spending in response to delayed compensation, and how agencies will adjust their spending on goods and services now that funding has resumed,” it said.

The report came as federal employees were beginning to return to work, following Friday’s agreement between President Trump and congressional leaders to reopen the government for three weeks while negotiations continue over border security.

Rep. John Yarmuth, D-Ky., chairman of the House Budget Committee, said the report should serve as a warning to Trump not to shut down the government again.

“The CBO confirms that the Trump shutdown had a debilitating effect on our entire economy, and if it were to resume in three weeks, millions of Americans would again share the pain of the 800,000 workers who spent the past month without a paycheck,” Yarmuth said.