Shutdown upsetting economy in many ways
WASHINGTON — Delta Air Lines can't get eight new aircraft in the air. Roughly a million government employees and contractors aren't being paid. Some Americans who are trying to start small businesses face delays in obtaining the required tax identification number from the IRS.
As the partial government shutdown moves through its fourth week with no end in sight, the economic blow is being felt not only by federal workers but also by business people, households and travelers across the Pelosi wants State of the Union delayed | A3
country. And while the hit to the overall economy so far remains slight, economist foresee real damage if the shutdown drags into February or beyond.
“Even if the shutdown is over by the end of the month, the hit to growth will be material,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a research note.
Shepherdson projects that after growing for nearly 10 years, the economy might even contract in this year’s first quarter if the shutdown lasts through March. Other forecasts are less dire. Mark Zandi, chief economist at Moody’s Analytics, thinks that if the shutdown extends that long, the economy would slow by 0.5 percentage point but would remain on solid footing.
On Tuesday, Kevin Hassett, a top economist in the White House, acknowledged that the shutdown was weighing on the economy more than he had previously estimated. Hassett, chairman of the Council of Economic Advisers, said the White House now calculates that annual growth is slowing by about 0.1 percentage point a week.
That calculation would suggest that the economy has lost nearly a half-percentage point of annual growth so far, though some of that loss occurred at the end of last year and some in the first quarter of this year. Hassett said the economy should enjoy a boost whenever the government reopens.
Previous White House estimates of the impact didn’t fully take into account the effects on people who work for private companies that contract with the government to provide services, Hassett said.
The shutdown is rippling through the economy in ways that are not always visible, making it hard to fully assess its consequences. Complicating the task is that much of the economic data the government normally provides — from retail sales to home construction to the nation’s gross domestic product — has been suspended because the agencies that compile it remain closed.
With national parks shut down and some travelers suffering through long security lines and, in some cases, partial airport closures, many Americans are having to decide whether to cancel travel and vacation plans.
“It is now plainly evident that the shutdown is affecting air travel, and when that happens, damage to the overall U.S. economy will shortly follow,” said Jonathan Grella, a spokesman for the U.S. Travel Association, a trade group.
Some companies are pointing to specific problems: Delta said Tuesday that the shutdown is costing it $25 million a month in government travel. Its CEO, Edward Bastian, said that with the Federal Aviation Administration partially closed, Delta will also likely delay the start date of eight new aircraft.
The Securities and Exchange Commission, which oversees public stock offerings, is mostly closed because of the shutdown. As a result, some companies that had been planning initial public offerings in coming months, including Uber and Lyft, are likely facing delays. Marianne Lake, chief financial officer for Jpmorgan Chase, said the bank could lose out on fees from IPOS and merger and acquisition deals that would be delayed if other shuttered agencies can’t approve them.
Neil Bradley, chief policy officer at the U.S. Chamber of Commerce, said the chamber has heard from members that have been unable to obtain an employer identification number from the IRS. That number is needed to open bank accounts and file tax returns.
Eric Smith, an IRS spokesman, said most U.s.-based businesses can obtain the numbers online, but paper applications aren’t being processed.
The most hard-hit by the shutdown, of course, are government workers themselves, who missed their first paychecks Friday, and contractors that work closely with the government. Many have had to cut back on purchases, lowering overall consumer spending.
Zandi said the shutdown could inflict longer-term damage on the government — and ultimately on the economy — in ways that might not be obvious. He noted, for example, that some demoralized federal employees, particularly those with vital skills in such areas as cybersecurity, might quit for jobs in the private sector. Federal agencies may also have a harder time recruiting young workers.
“Government workers have options,” Zandi said, particularly with unemployment low and many employers desperate to fill jobs. “This could be quite debilitating to the government.”