WASHINGTON, Jan 19, 2019 (BSS/AFP) – After four weeks, the partial
shutdown of the US government has begun to rattle the world’s largest
economy, particularly hitting consumer sentiment, a mainstay of growth.
A closely-watched monthly consumer survey on Friday touched its lowest
level since President Donald Trump’s election in 2016, suffering its biggest
one-month drop in more than six years, according to University of Michigan
economists.
Americans have less confidence in the economy’s strength in 2019, while
800,000 government workers are furloughed or work without pay as Trump
battles on Democratic lawmakers over funding for a wall on the Mexican
border.
The shutdown, which began December 22, directly affects only 0.5 percent
of the labor force, but indirectly, it is beginning to hit morale for more
than half of US consumers, according to the report.
When government operations resume, federal workers should ordinarily get
back pay. But this may not be true for contractors, who could have to eat the
loss.
As the work stoppage continues, economists have progressively raised their
estimates for its cost to GDP growth.
White House economists doubled their estimate early this week, determining
that after a month, the shutdown would shave a half percentage point off the
first quarter.
Influential central banker John Williams, president of the New York
Federal Reserve Bank, upped the ante on Friday, saying the first quarter
could lose a full percentage point.
“It is going to be a drag on consumer spending and the economy in the
first quarter directly, enough to pull growth down by up to a half
percentage, or maybe even a percentage point, if it continues,” he told a
local banking conference, according to Bloomberg.
– Fundamentals are solid –
Nevertheless, Williams said there could be a post-shutdown rebound, as had
been the case in the past.
The battle over wall funding coincides with other clouds on the horizon,
as a recent Fed survey showed.
The US-China trade war, sharp volatility on stock markets that left the
major Wall Street indices in correction for a month, and fumbled public
statements from the central bank also made investors shudder.
With a slowing global economy and trade uncertainties, the Fed for now
expects 2.3 percent growth in 2019, down sharply from the growth of about
three percent expected for 2018.
Forecasts for the first quarter of this year are not yet available.
The fundamentals of the economy remain sound, analysts say, even if much
economic data — including home and retail sales or the trade deficit — is
not being produced during the shutdown.
Gregory Daco, chief US economist at Oxford Economics, said in an
analytical note on Friday that some were sure to claim the Michigan survey
“signals an imminent recession.”
But he said the index had already been too high in recent months, meaning
it was due to fall.
“Further, while growth in outlays will slow in 2019, a strong labor
market, firming wage growth, lower prices at the pump and reduced mortgage
rates remain supportive of momentum,” he wrote.
Williams of the New York Fed likewise said in a speech on Friday that the
situation looked good.
“The economy is strong, the outlook is healthy, and my number one priority
is using monetary policy to keep it that way,” he said in prepared remarks.