US shut­down sends econ­omy into un­charted wa­ters

Gulf Times Business - - BUSINESS -

The US gov­ern­ment shut­down on Satur­day be­came the long­est in his­tory and is tak­ing a grow­ing bite out of the world’s largest econ­omy with each pass­ing day, econ­o­mists say.

While most of the 21 “lapses” in gov­ern­ment spend­ing since 1976 left barely a scratch on eco­nomic growth, the length of this shut­down makes it harder to say just how bad the im­pact could get.

“It’s not a hard stretch to say that ini­tially it’s smaller and then it ex­pands, the pain starts to widen,” Beth Ann Bovino, chief US econ­o­mist at S&P Global Rat­ings, told AFP. “Think of it as a but­ter­fly ef­fect.”

With about a quar­ter of the fed­eral work­force af­fected, the shut­down is cur­rently squeez­ing an es­ti­mated $1.2bn a week out of the econ­omy, Bovino said, but that fig­ure could grow if it drags on.

At the cur­rent rate, within two weeks it will have cost Amer­ica more than the $5.7bn US Pres­i­dent Don­ald Trump is de­mand­ing for a wall on the bor­der with Mex­ico, the dis­pute with Con­gress that led to the fail­ure to pass fund­ing for gov­ern­ment op­er­a­tions.

Fol­low­ing ex­tended clo­sures in 1995 and 2013, the US econ­omy con­tin­ued to grow while stock mar­kets mainly went side­ways.

And GDP growth lost in one quar­ter can re­bound in the next as the gov­ern­ment springs back to life and work­ers re­coup lost salaries.

But some losses can never be re­cov­ered.

In myr­iad but of­ten un­seen ways, the $4tn fed­eral bud­get is felt in the daily lives of all Amer­i­cans, well be­yond the 800,000 gov­ern­ment work­ers now go­ing with­out pay — many of whom missed their first pay­checks on Fri­day.

Switch­ing off even a part of the gov­ern­ment means that life force quickly be­gins to bleed away.

Pay­ments to farm­ers and poor fam­i­lies, craft beer la­bels, food in­spec­tions and eco­nomic data all have fallen vic­tim to the bud­get im­passe.

Mean­while, tax re­funds and bor­rower in­come ver­i­fi­ca­tions cru­cial to the mort­gage in­dus­try were briefly up in the air with bil­lions at stake.

“The ten­ta­cles start to touch many av­enues of life and that’s a very sad thing,” Bovino said.

US Coast Guard cut­ters, their crews work­ing with­out pay, on Mon­day be­gan ice­break­ing at com­mer­cial ports in the frigid wa­ters of Great Lakes near the Cana­dian bor­der so lo­cal steel mills can re­main sup­plied with iron ore.

Mean­while, farm­ers can­not col­lect aid pay­ments de­signed to help ease the pain caused by Trump’s trade war with China.

Small Busi­ness Ad­min­is­tra­tion loans to help mom-and-pop busi­nesses try­ing to in­vest, hire and grow have been de­layed.

There are no gov­ern­ment loans for seeds or cat­tle feed and none of the reg­u­lar Agri­cul­ture Depart­ment data about crop yields and com­mod­ity prices that farm­ers de­pend on to plan for the com­ing year.

Per­mits from some oil and gas drilling — which feeds into GDP cal­cu­la­tions — are de­layed.

Bloomberg es­ti­mates that gov­ern­ment con­trac­tors are los­ing $200mn a day, cut­ting rev­enues for de­fence in­dus­try gi­ants like Boe­ing, Gen­eral Dy­nam­ics and Lei­dos.

Tourism at the coun­try’s 400 na­tional parks nor­mally gen­er­ates a re­ported $18mn a day, but with some parks unat­tended and many ser­vices halted, lo­cal restau­rants, ho­tels and shops are los­ing cus­tomers.

Gov­ern­ment as­sis­tance to feed the poor­est Amer­i­cans is funded through next month only.

None of this in­cludes the hard­ships felt by the 380,000 fed­eral work­ers who have been fur­loughed or the 420,000 who are deemed “es­sen­tial” but are work­ing with­out pay.

They owe an es­ti­mated $438mn a month in rent and mort­gage pay­ments, ac­cord­ing to the real es­tate firm Zil­low.

Around the Wash­ing­ton re­gion, home to about 20% of the fed­eral work force, restau­rants are sit­ting empty, taxis are idled and traf­fic in­creas­ingly moves with eerie ease along the cap­i­tal’s choked boule­vards.

Yin­grui Huang, an en­gi­neer for a de­fence con­trac­tor at Nasa’s God­dard Space Flight Cen­ter in Mary­land, told AFP his com­pany is nor­mally at work build­ing weather satel­lites and tele­scopes for the gov­ern­ment but is shut­tered un­til fur­ther no­tice.

To fight bore­dom, he is now driv­ing for the mo­bile ride hail­ing ser­vice Lyft but said he was most con­cerned hourly em­ploy­ees like jan­i­tors, cafe­te­ria work­ers and sec­re­taries.

“Their salaries are def­i­nitely lower than most of the en­gi­neer­ing staff. They don’t get the lime­light. We don’t think about them,” he said.

Eco­nomic re­search on the last ma­jor shut­down in Oc­to­ber 2013 found many fed­eral work­ers were largely able to avoid sink­ing into debt — de­lay­ing mort­gage pay­ments and shift­ing bal­ances be­tween credit cards.

But that shut­down lasted for barely two weeks — one pay cy­cle — and law­mak­ers at the time had quickly promised work­ers would re­ceive back pay.

“It’s pos­si­ble that the ef­fects will be greater for this shut­down,” Univer­sity of Chicago econ­o­mist Con­stan­tine Yan­nelis, who stud­ied the 2013 shut­down, told AFP.

“The longer a shut­down lasts, the more per­sis­tent a change in habits you could see.”

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