The U.S. economy has largely escaped unscathed from a partial government shutdown that’s putting a squeeze on 800,000 federal workers and their families, but it doesn’t mean the political paralysis in Washington comes without a cost.
Leading economists at America’s biggest banks say the shutdown has shown hardly any rippling effects. Federal workers who’ve been furloughed are just missing their first paychecks.
“The partial shutdown is, in our view, only a minor drag on the economy to date,” said Robert Dye, the newly appointed chairman of the economic advisory committee of the American Bankers Association.
He and other economists estimate the shutdown might knock off a tenth or two of a percentage point from gross domestic product, perhaps a bit more if it lasts a few weeks longer.
“It’s very difficult to put a number on,” Dye said. “Certainly if it were to extend into another paycheck cycle or two it could exert some meaningful drag on the economy.”
That’s still a drop in the bucket for the world’s largest economy, however.
The most immediate problem —beyond the families directly affected — is a lack of clarity about what’s going on in the economy at a time when worries about a recession have grown and investors are anxious.
The federal government, for instance, has delayed key reports on housing and the trade deficit that normally are released by agencies now closed. If the shutdown doesn’t end soon, other critical surveys on inflation, business investment and gross domestic product could also be delayed.
The most long-lasting damage from the shutdown might be more symbolic or psychological, especially for investors who loathe uncertainty.
The turmoil in Washington is widely viewed as a contributor to the Wall Street selloff SPX, >+0.19% in December that wiped out all the stock-market gains for the year.
“For the markets the shutdown is just another reminder of how dysfunctional Washington is,” said Ethan Harris, global economist at Bank of America Merrill Lynch. “The market has been overwhelmed with uncertainty.”
The uncertainty might not end soon, either.
Even after Democrats and Republicans find a way to end the shutdown, they’ve been engaged in long-running skirmishes over the level of federal spending and U.S. debt.
In the next several months, for example, the two parties need to agree to increase a federal limit on how much debt the federal government can carry.
Fights over the debt ceiling have broken out repeatedly in the past eight years. It’s always gets raised, but not before a lot of political posturing that puts Wall Street and sometimes the rest of the world on edge.
The bond-rating agency Fitch said the U.S. risks losing its pristine triple-A credit rating later this year if the government shutdown persists and or another standoff over the debt ceiling ensues.
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