Shutdown yet to infect economic-growth outlook

Despite concern over the fallout of the U.S. government shutdown, most forecasters don’t expect it to cause too much pain to the economy so long as it doesn’t endure.

Analysts project the government will reopen by mid-February, though if the closure lasts through March, the disruption will cause economic growth to dip below 2 percent this quarter, according to the median forecast in a Jan. 15-17 Bloomberg survey. At the same time, just under half say the government impasse increases the probability of a recession this year.

The relatively sanguine assessment is at odds with some moredire recent predictions, including by Deutsche Bank, and the White House itself doubled the estimated negative fallout. Even so, the shutdown adds risk at a time when the economy is already projected to slow, forecasters see the highest recession risk in six years, manufacturing is faltering and consumers and investors are getting more skittish.

“If the shutdown keeps going on throughout the first quarter, it’ll be costly for growth,” said Ryan Sweet, head of monetary policy research at Moody’s Analytics Inc. While it probably won’t end the expansion given the momentum at the start of the year, “it could leave a more lasting impression, weighing on business confidence, consumer sentiment and investor confidence.”

A separate Bloomberg survey this month showed economists raised the probability of a recession in the next 12 months to 25 percent, the highest in more than six years, amid the shutdown and trade war. A Federal Reserve Bank of New York gauge put the chance at 21 percent a year from now, the highest since 2008.

In the first quarter, the shutdown will shave 0.25 percentage point from economic growth,

according to the median of 30 responses in the survey. A slight majority of forecasters also said the full-year pace of expansion will be affected.

Among those who do expect an i mpact, 2019 growth will be cut 0.13 percentage point, according to the median estimate.

New York Fed President John Williams said Friday that the shutdown could cut first-quarter growth by about 0.5 percentage point “or maybe even a percent- age point, if it continues.”

“The good news is that when the shutdown ends, if it’s like in the past, the people will get paid whether they worked or not, and then we will see a rebound in GDP after that,” Williams said.

For now, with the closure since Dec. 22 now the longest in U.S. history, there’s no sign from President Don- ald Trump or Congress that an agreement is near.

A majority of those polled this week said the closure will end Feb. 1-14, while just above a third estimated it would end this month.

One saw a conclusion Feb. 15-28 and another saw the closure extending into March.

“Uncertainty is adding to the gloom,” along with concerns about the fading boost from tax cuts and government spending stimulus, geopolitical risks and higher borrowing costs, said Bernard Baumohl, chief global economist at the Economic Outlook Group LLC. “With every week, the shutdown has an incrementally larger impact.”

“That’s begun to cast a dark picture among many business leaders, certainly among CFOs, that the econ- omy is in trouble and could end up in a recession,” Baumohl said.

He doesn’t forecast a recession this year, and estimates a one-in-three chance of a slump next year.

The shutdown also may affect the jobless rate, as hundreds of thousands of furloughed government workers could be classi- fied as unemployed. The survey median is for a January unemployment rate of 4 percent, rather than holding steady or edging down from December’s 3.9 percent amid the strong labor market.

The White House on Tuesday doubled its estimate of the cost of the government shutdown on the economy — saying it hadn’t been counting the effects on more than 1 million government contractors.

Council of Economic Advisers Chairman Kevin Hassett told reporters the administration’s new estimate of the shutdown’s cost to economic output is a reduction of 0.13 percent every week, not 0.1 percent every two weeks as previously estimated.

ANDREW HARRER / BLOOMBERG Customers wait in line outside a restaurant opened for federal workers and their families during a partial government shutdown in Washington D.C. on Thursday.