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.

By , Staff writer

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    A woman takes a photograph of a mural at the Smithsonian's Air and Space Museum in Washington, Thursday, Oct. 17, 2013. Barriers went down at federal memorials, National Park Service sites, and the Smithsonian Institution's network of popular museums, and thousands of furloughed federal employees returned to work Thursday after 16 days off the job due to the partial government shutdown.
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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.

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.

Recommended: Debt ceiling 101: 12 questions about what's going on

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.

As for the National Zoo’s panda cam, Americans have missed out on two weeks of a little cub’s infancy. She’s nearly doubled in weight and has “partially opened her eyes,” the zoo reports. “Her ears are also fully open and she now reacts to the noises she hears in the panda house.”

Turning federal operations back on doesn’t happen in an instant, though. Many agencies face a backlog of work that piled up during the past two weeks and could be scrambling for weeks to come to catch up.

Still, the most important federal operations never went into shutdown mode. Americans kept getting their Social Security checks and Medicare benefits. Airports still had their traffic-control towers staffed. Military personnel stayed at their posts. The Pentagon even called 300,000 civilian defense workers back to their jobs as “essential” before Congress took action to end the shutdown.

Federal paychecks. The federal government, America’s largest employer, will again distribute paychecks to employees, both for those who were furloughed and for those who worked through the shutdown without pay. Many of those workers pared back on spending during the shutdown and can now open their wallets more freely.

Money can also start flowing again to private-sector contractors to the government affected by the shutdown.

Borrowing and credit. First the good news: Average Americans aren’t seeing a noticeable hike in interest rates, as might have occurred had Congress not raised the debt ceiling. For example, the national average for a 30-year fixed-rate mortgage is 4.28 percent as of Thursday, according to the mortgage firm Freddie Mac. That’s up a bit from last week but lower than it was in early September.

The bad news? The US government’s credit reputation is still at risk – with implications for everything from mortgage loans to business and consumer credit conditions, finance experts say. That’s because the two political parties in Washington seem to be stuck in a pattern of recurring standoffs over budget policies. They might be back near a cliff in January, although Republican lawmakers may have been chastened after their latest gambit extracted no concessions from President Obama.

During the impasse, the credit-rating firm Fitch put America’s sovereign debt on watch for a possible downgrade. 

Taxpayer burdens. The shutdown won’t save taxpayers any money, judging from past history and economists' predictions. That’s because federal workers will still get their full pay, and the work they were supposed to do during the shutdown still needs to be done. If anything, the episode means the government will spend a bit more than usual – thus adding to the future tab for taxpayers – because of costs incurred as agencies temporarily close down and then reopen.

District of Columbia. The city of Washington was hit hard by the shutdown, in part because it lost access to local tax-revenue sources that it ordinarily relies on. That won’t happen again during the next fiscal year, even if a budget stalemate causes another federal shutdown. That’s because the legislation passed this week grants the District access to its tax money, regardless of what happens in budget battles during the 2014 fiscal year.

To Mayor Vincent Gray, that was enough to warrant a big thank-you note to congressional leaders of both parties and President Obama “for recognizing the District’s unique plight and that it is completely unjust for the District to be barred from spending our own local revenue.”

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