A partial shutdown of the federal government will cost the U.S. at least $300 million a day in lost economic output at the start, according to IHS Inc.
While that is a small fraction of the countryÂ’s $15.7 trillion economy, the daily impact of a shutdown is likely to accelerate if it continues as it depresses confidence and spending by businesses and consumers.
Lexington, Massachusetts-based IHS, a global market research firm, estimates that its forecast for 2.2 percent annualized growth in the fourth quarter will be reduced 0.2 percentage point in a weeklong shutdown. A 21-day closing like the one in 1995-96 could cut growth by 0.9 to 1.4 percentage point, according to Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia.
“Government spending touches every aspect of the economy, and disruption of spending, more than the direct loss of income, threatens to damage investor and business confidence in ways that can seriously harm economic growth,” LeBas said yesterday in an interview.
If a shutdown drags on, it would start to shake consumer and business confidence more broadly, economists said. Household spending accounts for 70 percent of the economy.
Bank of America Merrill Corp. projects that a two-week closing would curb fourth-quarter growth by 0.5 percentage point, while closing for all of October would shave 2 percentage points from GDP, Ethan Harris, co-head of global economics research, wrote in a note to clients.
A shutdown will probably add to the budget deficit because it “is costly to stop and start programs,” Harris wrote.
Congress and the White House also will face off over raising the nation’s $16.7 trillion debt ceiling. The Treasury has said its ability to borrow will end on about Oct. 17 unless the limit is increased. Treasury Secretary Jacob J. Lew has said that failing to raise the limit would risk putting the U.S. into default and could be “catastrophic.”
“The longer the shutdown, the more damage will accrue to business and consumer confidence,” Eric Green, New York-based global head of foreign exchange, rates and commodities at TD Securities USA LLC, wrote in a note. “A longer shutdown stretching into mid-October, when the Treasury estimated that the debt ceiling will need to be raised, would likely magnify the hit to economic activity by raising the risk of a bad outcome on the debt ceiling.”