Government shutdown over: How big of a hit did the US economy take? (+video)
Congress's resolution of the government shutdown and debt limit crisis has some upbeat implications, but the fiscal stare-down also did some lasting damage to the US economy.
A 16-day federal government shutdown ended early Thursday morning, signaling an end to a bitter and high-stakes fiscal fight that threatened to mire the US economy in slower growth – or worse – just ahead of the year's busiest retail season.Skip to next paragraph
Infographic The debt ceiling battle explained in 12 charts
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The resolution has some upbeat implications for ordinary Americans: revived consumer spending as furloughs end for workers; a return of many basic federal services – including the National Zoo’s beloved “panda cam” video feed; and an overall confidence boost as worry fades about a looming Treasury default.
All that helped push the Standard & Poor’s 500 stock index to a record high by midday Thursday.
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But the shutdown and the threat of a debt-limit crisis also did some lasting damage. Economic growth in the fourth quarter is poised to be lower than it would have been. The shutdown may end up costing taxpayers money instead of saving them anything. And America’s reputation as a credit-worthy borrower has suffered at least a modest ding.
On a more personal level, many tourists with immovable travel schedules missed hoped-for visits to places such as national parks or the National Gallery of Art.
“The government shutdown and flirtation with default have dealt a severe and entirely avoidable blow to America’s reputation around the world while harming economic growth and job creation,” Business Roundtable president John Engler said in a statement released as Congress was voting Wednesday to end the shutdown.
The fiscal stalemate that had gripped the nation’s capital was bookended by a partial government shutdown that began Oct. 1 and by a last-minute legislative fix on Oct. 17, as a deadline arrived to raise the ceiling on federal debt.
By some estimates, the episode could knock as much as half a percentage point off economic growth in the fourth quarter. For reference, forecasters on average had been predicting growth at a 2.6 percent annual pace for the quarter.
Gregory Daco of Oxford Economics in New York estimates that the furlough of roughly half a million federal workers, by itself, will cut 0.3 percentage points from fourth-quarter growth in gross domestic product (GDP). An additional dent to growth could come from the way fiscal uncertainty affects consumer confidence.
Here’s a run-down of what the shutdown and debt-limit debate mean for Americans and their economy:
Overall economy. The big news here is simply this: no recession. If the fiscal-policy tussle had sent the Treasury over a cliff, where it reached its borrowing limit and could no longer pay all federal bills, the risk that the economy would plunge back into recession was high, economists widely predicted. That risk is now off the table, at least for now.
But uncertainty about federal policies lingers as a drag on the confidence of consumers and businesses. The legislative bargain Congress approved Wednesday evening gives the Treasury free rein to borrow until early February, when lawmakers will need to revisit raising the debt limit. On the separate issue of Congress’s failure to pass a budget for new fiscal year – resulting in the partial shutdown – the latest action gives a reprieve for the two sides to negotiate a solution by mid-January.
Federal government services. Furloughed federal employees headed back to work Thursday, opening their e-mail, answering phones, and resuming many operations that had been shuttered for more than two weeks. National park sites, including the one that hosts the ship the USS Constitution in Boston, are open for visits again. Environmental Protection Agency pollution watchdogs are back on the job. NASA’s public website is up for viewing again.