The Capitol is seen in Washington, Monday morning, Sept. 23, 2013, with only a week left for Congress to pass a funding bill in order to avoid a government shutdown. The Republican-led House on Friday approved legislation to keep the government running but at the cost of wiping out the Affordable Care Act, popularly known at "Obamacare." Senate Democratic Leader Harry Reid has vowed to keep the health law intact despite Republicans' attempts.
A shutdown of the U.S. government would reduce fourth-quarter economic growth by as much as 1.4 percentage points depending on its length, economists say, as government workers from park rangers to telephone receptionists were furloughed.
Mark Zandi of Moody’s Analytics Inc. estimates a three-to-four-week shutdown would cut growth by 1.4 points. Zandi projects a 2.5 percent annualized pace of fourth-quarter growth without a shutdown.
A two-week shutdown starting Oct. 1 could cut growth by 0.3 percentage point to a 2.3 percent rate, according to St. Louis-based Macroeconomic Advisers LLC.
A shutdown would slow the expansion because output lost when workers are furloughed subtracts from gross domestic product. The prospect of a budget standoff between the White House and Congress and haggling over the debt ceiling could have a bigger impact on the economy as businesses hold off on investment and households delay spending.
“What we have is a political and not economic maelstrom,” said Bernard Baumohl, chief global economist at Economic Outlook Group LLC. “What everyone is watching right now is if the uncertainty is affecting consumer and business psychology, that they are postponing spending until they get more clarity.”
Americans were still spending in August, according to the Commerce Department. Household purchases, which account for 70 percent of the economy, climbed 0.3 percent. Incomes increased 0.4 percent in August, the most in six months.
“The consumer is still in a holding pattern, still waiting for better employment prospects,” said Russell Price, senior economist at Ameriprise Financial Inc. in Detroit.
A shutdown wouldn’t be unprecedented: 17 funding gaps happened between 1977 and 1996, based on a Congressional Research Service analysis. In 1995 and 1996, interruptions lasted from Nov. 14 to Nov. 19 and from Dec. 16 to Jan. 6, as Republicans clashed with President Bill Clinton’s administration.
A shutdown of just a few days would have little impact on the economy, analysts say. But a closure of more than two months would “likely precipitate another recession,” Zandi, chief economist at Moody’s Analytics, said on Tuesday in testimony to the Senate Budget Committee. Even a three- or four- week gap would “do significant economic damage.”
Haggling over a continuing resolution to fund the government past the end of the month comes as congressional leaders prepare for a fight over the nation’s $16.7 trillion debt limit.
Treasury Secretary Jacob Lew said the government would exhaust measures it has been using to keep under the debt ceiling no later than Oct. 17 and will have about $30 billion cash on hand.