The government shutdown cost the US billions of dollars, CBO says

The government shutdown cost the US billions of dollars, CBO says

US government shutdown protest air traffic controllers

REUTERS/Jonathan Ernst/File Photo

Federal air traffic controller union members protesting the partial government shutdown in Washington on January 10.

  • A partial US government shutdown ended Friday, its 35th day.
  • With hundreds of thousands of federal employees furloughed or forced to work without pay, it delayed economic activity.
  • About $3 billion in lost gross domestic product won't be recovered, the nonpartisan Congressional Budget Office estimated Monday in a new report.

The longest partial US government shutdown on record that ended Friday cost the US economy billions of dollars as it kept a fourth of federal agencies shuttered for five weeks, the Congressional Budget Office said Monday.
About 800,000 workers were furloughed or forced to work without pay after the shutdown began December 22, leading to a delay in spending and weighing on private-sector activity. The nonpartisan office estimates that shaved about $3 billion, or 0.1%, from inflation-adjusted gross domestic product in the fourth quarter and $8 billion, or 0.2%, from that of the first quarter of 2019.
While the economy will eventually make up most real gross domestic product lost during the shutdown, according to the office, about $3 billion will never be recovered.The estimates didn't incorporate more indirect effects of the shutdown, which the office said were more difficult to quantify but were probably becoming more significant as it continued.
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"For example, some businesses could not obtain federal permits and certifications, and others faced reduced access to loans provided by the federal government," CBO Director Keith Hall said in the report. "Such factors were probably beginning to lead firms to postpone investment and hiring decisions."

Indirect effects add a degree of uncertainty to the findings and could lead to a more pronounced economic impact in the long run, according to the former Federal Reserve staff economist Ken Kuttner.

That means the shutdown will most likely influence monetary policy this year, he said. The Federal Reserve Open Market Committee is expected to leave interest rates unchanged at a two-day policy meeting ending Wednesday and has signaled flexibility going forward."My guess is that this will further strengthen the FOMC's inclination to leave policy 'on hold' for the time being until the dust settles," Kuttner said.