U.S. Government Shutdown Threatens Economy, CBO Warns
(MENAFN) The ongoing federal government shutdown in the United States threatens to drag the economy down by as much as $14 billion, potentially cutting fourth-quarter gross domestic product (GDP) by 2%, the Congressional Budget Office (CBO) warned Wednesday.
Now entering its 29th day, the shutdown shows no clear resolution. Senate Democrats have pushed for talks to extend expiring federal tax credits aimed at supporting Americans with private health insurance under the Affordable Care Act, also known as Obamacare. Meanwhile, Senate Republicans have urged Democrats to accept a short-term funding measure to keep government agencies operational through Nov. 21.
According to the CBO, delaying federal spending on goods and services, employee pay, and food stamp programs designed to help low-income Americans could weigh heavily on the economy.
"The effects of the shutdown on the economy are uncertain. Those effects depend on decisions made by the Administration throughout the shutdown. In addition, how federal employees and contractors respond to the delay in compensation is uncertain," the CBO said.
The economic impact escalates with the duration of the shutdown. The CBO estimates a one-week resolution would still result in a $7 billion permanent economic loss. A six-week shutdown ending Nov. 12 would cost $11 billion, while an eight-week closure lasting until Nov. 26 could shave $14 billion off GDP.
The labor market is also under strain. The shutdown pushes up the unemployment rate because the Bureau of Labor Statistics (BLS) classifies most furloughed federal workers as unemployed or on temporary layoff if they report that they are furloughed and not otherwise employed, the CBO explained.
"If all furloughed workers in October were counted as unemployed on temporary layoff, the measured unemployment rate would rise 0.4 percentage points in October," it added.
This shutdown, the second-longest in U.S. history, began on Oct. 1 after federal spending negotiations collapsed. Thousands of federal employees remain furloughed, and numerous government services have been reduced or suspended.
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