Economists say fresh government shutdown would hurt U.S.

‘A second shutdown would severely erode consumer and business confidence’

Economists say a fresh government shutdown would take a toll on U.S. economic growth as well as business and consumer sentiment, as a deadline to reach a deal over border-wall funding approaches next week.

Most of the private-sector economic forecasters, 58.9%, surveyed in recent days by The Wall Street Journal said another shutdown would have “somewhat” of an impact on economic growth, while 16.1% said it would have a significant impact. “A second shutdown would severely erode consumer and business confidence,” said Thomas Kevin Swift, chief economist at the American Chemistry Council, in remarks echoed by other forecasters.

The impact on confidence “would be much bigger than direct impact of government spending and services,” said economist Robert Fry of Robert Fry Economics LLC.

A quarter of respondents said another shutdown would have little impact on economic growth. Economist Michael Cosgrove of the Econoclast Inc. said the recent snap of cold weather will have a much larger negative impact on gross domestic product than a further government shutdown. Congress and the White House face a Feb. 15 deadline to reach an agreement on spending issues, including funding for the president’s long-promised wall along the border with Mexico. President Trump, when he announced the temporary deal Jan. 25 to reopen government, said that if no deal is reached that included wall funds, he would either shut down part of the government a second time or declare a national emergency. Federal employees last week returned to work after the 35day partial shutdown, which economists previously estimated would shave 0.3 percentage point off first-quarter growth.

Lynn Reaser of Point Loma Nazarene University, a former chief economist at Bank of America Corp., expects a fresh shutdown would have little impact on economic growth and “it would likely be short as public outrage rises.”

Economists’ average probability of a recession in the next year was 25% in the February survey for the second month in a row, matching the highest level since October 2011.

In response to a separate question, most forecasters, 45.7%, said they expect the next recession to start in 2020, while 39.1% predicted it will start in 2021. Survey respondents expect U.S. economic output will grow at a 2.0% clip in the first quarter of this year and a 2.5% rate in the second quarter.

Economists expect the unemployment rate to tick back down to 3.7% in the second quarter and remain at that low level through the second quarter of 2020. The unemployment rate was 4% in January.

More than three-quarters of forecasters, 76.4%, said they saw a greater risk that the economy would grow more slowly than it would grow faster. While that was a drop from 83.9% in January, it remains a sign of pessimism about the outlook.

This time a year ago, fewer than 30% of respondents saw the risk to their growth forecast as tilted to the downside. Uncertainty surrounding U.S.-China trade relations is another factor economists are keeping a close eye on.

When asked about the effects on the economy this year from Washington and Beijing’s trade spat, more than two-thirds of economists said they expect the impact to be somewhat detrimental to the economy.

Some 14.2% expect the spat to cause significant detriment to the economy, while 17.9% of respondents said they expect no meaningful economic effect.

The Journal surveyed 62 business, financial and academic economists Feb 1-5. Not every forecaster answered every question.