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End of government: GDP, consumption expenditure, US economic impact



While the record-breaking government ending causes severe upheaval on Capitol Hill, economists say the closure of much of the government is already weighing on the US economy.

But it could get even worse. According to an economist whose interruption lasts for "months", as President Donald Trump threatened in a meeting with Democrats, the US economy could actually fall in the first quarter of the year.

Ian Shepherdson, chief economist at the Pantheon Macroeconomics, prepared a worst case scenario based on the partial closure of the government that was at the end of March.

While most economists predict that the decommissioning will shave away from GDP in the first quarter due to lost wages to the 800,000 federal non-salaried employees, Shepherdson said the compound effect on federal contractors and dependent businesses The cost of federal employees will be even worse.

"We have no way of estimating the impact on public contractors or the other round effects when these companies fail or have to delay paying their employees, subcontractors, suppliers, and creditors, but that won't be trivial," Shepherdson said in a note to customers. "If the shutdown were to last through the whole quarter, we would therefore seek a direct fall in the first quarter of GDP."

Read more : From the airport to food inspections, here are all the ways in which government interruption affects the lives of the average Americans »

A negative GDP pressure for the first quarter would be a monumental fall and drastic surprise when they Most economists expect a reading between 2.5% and 3.0%. But, as Shepherdson said, there is only so much slack that can be given to businesses and consumers affected by the decommissioning.

"But businesses and farms that go down as a result of the decommissioning cannot arise magically when it's over," the economist wrote. "Not all traders will have lenders as accommodating as those who bailed out President Trump's missing businesses."

Most studies show that, for each week's interruption, 0.05 to 0.1

percentage points of growth from the quarter is taken, which means that the shutdown has fallen by as much as 0.1 to 0.2 points from the first quarter. In light of this study, economist Daniel Silver, JPMorgan, also lowered GDP growth forecasts in the first quarter to 2% from 2.25%.

Silver also said that the pain could pick up if the congress and the trump could not soon reach agreement.

"So far, it is difficult to convincingly discover a macro effect on the private sector activity, even though the risk of wastage to the private sector increases, the longer the decommissioning lasts," Silver said.

Economic economists of the Bank of America Joseph Song, Michelle Meyer and Anna Zhou also reduced their prospects for growth in the first quarter due to the closure, but worried that further disadvantages could arise if the uncertainty about government dysfunction begins to leak. into consumer sentiment and American expectations.

"Additional features can be felt if the decommissioning creates uncertainty shocks in the economy, leading to a decline in business and consumer sentiment and / or a fall in US stock markets," the Bank of America Merrill Lynch team wrote. "So far, the indirect effects have been limited, but they will become a major feature of growth as decommissioning continues."

So in case of prolonged interruption, the pain first hits federal employees and companies that rely on a state program. Then, the pain spreads to companies, landlords and employees of companies that rely on the people who lack the state payments.

As the pain builds, Americans and businesses across the country become nervous about the dysfunction and lack money, ultimately producing a broader economy.

While Shepherd's prediction is a worst-case scenario, and such a horrendous GDP number would also be an unprecedented bite from a state break, the length of the decommissioning is also unprecedented, and as the economist said, the pain is already beginning to build.

"Although the decommissioning is over at the end of the month, features for growth will be significant and it will damage earnings for the first quarter, not to mention the cost and misery imposed on state employees, contractors and their families , "shepherdson said.


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