President Trump’s monthlong government shutdown should have a relatively fleeting impact on the economy — if he and lawmakers on Capitol Hill can manage to keep the federal bureaucracy up and running.
Trump closed unfunded parts of the government on Dec. 22 in a bid to fund a wall at the southern border — that he always said Mexico would pay for. But the result so far has been protracted game of chicken with House Speaker Nancy Pelosi (D., Calif.).
The shutdown left 800,000 workers without paychecks, delayed regular economic reports, including monthly retail sales figures, and jammed up the IPO pipeline as the Securities and Exchange Commission worked with a skeleton staff. The final straw seems to have been flown in as staffing issues started delaying flights at major airports.
Trump said Friday he reached a deal with lawmakers to reopen the government for three weeks as they negotiated a package for border security. That marked a rare retreat given that rival Democrats had refused to negotiate the issue until the government reopened.
Paul Ashworth, chief U.S. economist at Capital Economics, said the first quarter impact would be “minimal” and projects GDP growth of 2 percent on an annualized basis for the period.
Ashworth noted the negative impact the impasse has had on Trump’s approval ratings and the signs that the shutdown was starting to have a broader impact, for instance at the airports.
“It would be remarkable if Trump then decided to back himself into a similar corner in three weeks’ time and triggered another shutdown,” the economist said. “Nevertheless, we could still see further disruptive budget fights over the next few months, particularly as the debt ceiling will need to be raised within the next few months.”
Stephen Stanley, chief economist at Amherst Pierpont Securities, added that any slowdown seen in the first quarter would likely be picked back up.
“There are no guarantees that we won’t be right back in the midst of a government shutdown by late February,” he said. “But assuming that the government remains open for the remainder of the quarter, I would estimate that the shutdown will subtract about 0.3 percentage points from the first quarter real GDP, and I would look for all of that drag to be reversed in the second quarter.”
The three-week shutdown cool-off period hardly registered with investors, who on Friday traded the Dow Jones Industrial Average up 0.8 percent, or 183.96 points, to 24,737.20.