Economy Watch: Cost of the Shutdown
- Oct 18, 2013
No sooner was the federal government shutdown over on Thursday than estimates of its cost to the U.S. economy were being published. One of the more high-profile estimates came from Standard & Poors, which posited that the total cost would be $24 billion, or roughly 0.6 percent of GDP in the fourth quarter, though some of that might be recouped in the first quarter of next year if there isn’t another shutdown. Other estimates put that figure lower, at about 0.3 percent.
Standard & Poors’ estimate included both the direct impact (lost government spending through wages and other means) and the indirect impact—companies who do business with the government losing income and laying off workers, for instance. Estimates of the direct loss of government services were put at $3.1 billion by HIS Global Insight.
The intangible costs are harder to calculate. Over the long run, the damage in dollars might not be as great as the damage to consumer and investor confidence because of the uncertainty caused by such inept governance. Worldwide, the prestige of the United States—and its debt, until recently the unquestionably best in the world—has probably been damaged, at what cost no one knows yet.
Unemployment claims drop
The U.S. Department of Labor reported on Thursday that for the week ending Oct. 12, initial unemployment claims were 358,000, a decrease of 15,000 from the previous week’s revised figure. The four-week moving average, which is usually less jumpy, in fact jumped quite a bit, rising by 11,750 from the previous week to 336,500.
The weekly initial claims numbers have been generated despite the federal government, because the states generate the data. The recent numbers have been distorted, however, by reporting problems in California, which has had issues with the computers that tabulate the state’s data. It isn’t clear yet if the claims spike at the national level during the week before last (ending Oct. 5) was due to previous underreporting by California or not, and what impact that had on last week’s numbers.
In a related note, the Bureau of Labor Statistics, which is now up and running again, announced on Thursday that it would release the U.S. employment numbers for September on Oct. 22. The report had been originally slated for Oct. 4, but was pre-empted by the shutdown.
Economic data affected by shutdown
The Cleveland Federal Reserve reported on Thursday that the impact of the shutdown on report consumer price data—also something the BLS does—will linger for months. “The government shutdown… caused a delay in the release of these statistics and many of the statistics and data products that rely on them,” the report noted. “But the shutdown will also affect the accuracy of these statistics for months to come.”
Some of these repercussions will occur later this month, the report added, but the majority of the influence will occur in November. At that time, the monthly overall inflation estimates derived from the CPI will be subject to significant error, it said.
Wall Street had a mixed day on Thursday after Wednesday’s surge, with the Dow Jones Industrial Average down 2.18 points, or 0.01 percent, or practically breaking even. The S&P 500 was up 0.67 percent and the Nasdaq gained 0.62 percent.