WASHINGTON — The 35-day government shutdown — which could happen again if an agreement on homeland security funding isn’t reached by Feb. 15 — cost about $3 billion in projected gross domestic product that is “a permanent loss,” the director of the Congressional Budget Office said today.
In all, about $11 billion was lost in economic growth, with $3 billion in the last quarter of 2018 and $8 billion at the beginning of 2019.
The CBO projections discussed by Director Keith Hall at a media briefing today found that “federal debt is already large and budget deficits over the next decade and beyond are projected to keep pushing it up in relation to the size of the economy.”
“At the end of 2018, the amount of debt held by the public was equal to 78 percent of gross domestic product. In CBO’s projections debt equals 93 percent of GDP by 2029 and about 150 percent of GDP by 2049. Even at its highest point ever even after World War II debt was far less than that at 106 percent of GDP,” Hall said.
Hall explained that mandatory spending is outpacing economic growth, and “what’s behind that is an aging population and growing healthcare costs are just pushing that mandatory spending up fast.”
The effect of the five-week shutdown was “to lower compensation to federal workers and to lower federal spending on goods and services by about $18 billion in that five-week period.”
About an $11 billion reduction in GDP in Q4 and Q1 comes from a dozen affected departments and agencies with 800,000 employees out of 2.1 million employees — about 40 percent — not paid over the time period.
“The 12 departments were pretty wide-ranging. Spending on goods and services, including many contractors, were affected. That was lowered. One of the things that we did not take into account, but which is an effect is some grants and subsidies and spending of benefit programs. Those were affected, but we didn’t include that in our analysis. But we do think that once the government’s back in place, federal workers begin to work again, we think there will be a fairly quick recovery from that,” he said.
“There is a permanent loss, however, right? You lose the government output for five weeks. That’s never made up,” Hall added. “So we think on net we’re still going to be about $3 billion short on GDP, but that recovery will take about three quarters to the end. It also doesn’t take into account, which I will call the distributional effects, because the effects of the shutdown–we’re giving you the national data numbers, but in fact, you know, obviously federal workers were really impacted from delayed compensation. They’re in this–a lot of them are in this region, so it’s a regional effect. Private contractors are really affected.”
Other shutdown effects that will have an economic impact include “those needing federal permits and certifications” and “risk would be higher for those low-probability, high-cost events.”
“You know one of the things that I always like to point out, of those 2.1 million federal workers, two thirds of those work for either the Department of Defense, the VA or TSA. So security is a big part of that,” Hall said. “Household business decisions made without economic data. The Commerce Department was shut down, so we didn’t have economic data from the census, the Bureau of Economic Analysis. Then we have investor confidence. You know, if this lasted long enough we could actually see an impact on investment and hiring going forward.”
“And of course, as a last thing, which is not really counted here is the federal hiring. When you do this sort of thing you impact the morale of federal workers, and it may have some impact on the quality of federal workers going forward.”