What’s the price of the shutdown?

Nancy Marshall-Genzer Oct 1, 2013
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What’s the price of the shutdown?

Nancy Marshall-Genzer Oct 1, 2013
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There is a price to be paid for Congress’s shutdown smackdown: about $1.6 billion a week, according to IHS Global Insight.

“So, if we’re looking at a three-week shutdown,” says IHS analyst Paul Edelstein,”we’d go from about 2 percent growth in the fourth quarter to about 1.5 percent growth in the fourth quarter.”

Edelstein says the economy misses out on the money the government would be paying furloughed workers. The output of those workers will also be lost.  

And there’s a multiplier effect from the shutdown, according to economist Joel Prakken, who co-founded Macroeconomic Advisers. As furloughed feds all across the country abandon their favorite lunch spots and generally cut down on spending

“Their spending is somebody else’s income,” he explains. “And so that somebody else, whose income is down, may in turn cut back. And so on and so on and so on.”

And if the shutdown drags through October, some economists worry it could cut into the holiday shopping season. John Challenger of the consulting firm Challenger, Gray and Christmas says the shutdown could be worse than the shutdowns of the ‘90s, because the economy was in much better shape back then.

“Unemployment was at 5.6 percent,” he said of the Clinton-era shutdowns. “Right now it’s at 7.3 percent. Job creation was averaging 190,000 new jobs in the five months leading up to the furloughs back then.”

Challenger says today’s struggling economy can’t take too long of a shutdown. If it drags past a month, he worries we could even slide back into a recession.

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