Economic recovery could suffer

  • Updated: September 30, 2013 - 9:30 PM

 

 

The last time the federal government shut down, for three weeks in the winter of 1995-96, the American economy felt a jolt but recovered quickly. Things don’t look anywhere near as promising this time around.

The nation is currently more than four years into an economic expansion with some momentum behind it. That also was the case in 1995. But this time, things are a lot more fragile.

Americans continue to endure a relatively high unemployment rate of 7.3 percent, which is about 2 percentage points higher than in December 1995. Back then, job growth was stronger, the economy was starting to benefit from the tech boom, and baby boomers were entering their prime earning years, not preparing for retirement.

Estimates of economic effect vary.

However, most analysts predict that a two-week partial government shutdown would shave 0.3 to 0.4 of a percentage point from economic growth in the fourth quarter. Although not devastating, that isn’t a small amount either, especially for an economy that has been growing this year at an anemic annual rate of less than 2 percent.

A longer downtime would result in increasingly larger and escalating problems. It would cause disruptions in private-sector production and investments, as well as greater volatility in financial markets. MCT

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