Writing on the wall: CBO report estimates that government shutdown will cost $3 billion

January 29, 2019

President Donald Trump already has spent about $3 billion of the $5.7 billion he demanded for “the wall” at the U.S.-Mexico border when he shut the government down in late December.

Indeed, the partial government shutdown that ended on January 25 will cost the government about $3 billion and will subtract about 0.4 percentage points from annualized gross domestic product growth in the first quarter, the nonpartisan Congressional Budget Office said Monday, according to a report by The Wall Street Journal.

In new estimates of the shutdown’s impact, the CBO said the shutdown dampened economic activity—mainly because of the roughly 380,000 furloughed workers who weren’t contributing to GDP, as well as the delay in federal spending on goods and services and the reduction in aggregate demand.

CBO estimates that the five-week, 35-day shutdown delayed approximately $18 billion in federal discretionary spending for compensation and purchases of goods and services and suspended some federal services.

The estimates (which the CBO cautioned are just that, according to the Journal report) don’t incorporate other indirect negative effects of the shutdown, such as businesses that couldn’t obtain federal permits or access loans while the government was partially closed.

“Such factors were probably beginning to lead firms to postpone investment and hiring decisions,” the CBO said, adding that risks to the economy were becoming increasingly significant as the shutdown continued.

Kevin Hassett, the chairman of the White House Council of Economic Advisers, said on January 23 that the U.S. economy might not grow at all in the first quarter if the shutdown continued through March. But he added that the economy should recover any lost ground once the government reopened.

President Trump already has said that the reopening may be temporary—and has pegged it at three weeks—after which he will reassess the situation regarding border security.

Research contact: kate.davidson@wsj.com

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