WASHINGTON Oct 11 U.S. economic growth could
suffer a big hit in the fourth quarter if the partial shutdown
of the U.S. government lasts more than a month, analysts are
Economists estimate that the shutdown, which started on Oct.
1, was chipping away roughly 0.1 percentage point each week from
fourth-quarter gross domestic product.
"But if the shutdown lasts through the end of October, the
economic damage would be significant, reducing real GDP as much
as 1.5 percentage points in the fourth quarter," said Mark
Zandi, chief economist at Moody's Analytics in West Chester,
"An interruption longer than one month would likely cause
growth to stall in the quarter, and one longer than two months
could precipitate another recession," he said.
Analysts said the impact on growth could be even worse if
Congress failed to extend the government's borrowing authority
past next Thursday's limit.
The shutdown was set to head into its third week as the
White House and Republican leaders struggled on Friday to strike
a deal on reopening the federal government and on a short-term
increase in the country's borrowing limit.
Much of the hit to growth would come through reduced
consumer spending as hundreds of thousands of furloughed workers
postpone some purchases. Some government contractors and other
non-federal workers have also lost their paychecks during the
An early indication of the shutdown's impact on the economy
came on Friday, with news that consumer sentiment hit a
nine-month low in early October. Consumer sentiment is generally
viewed as a key indicator of consumer spending.
Data on Thursday showed filings for unemployment benefits by
non-federal workers helped lift jobless claims to a six-month
high last week.
On Friday, some economists pared their fourth-quarter growth
forecasts in light of the shutdown. Forecasting firm
Macroeconomic Advisers cut its fourth-quarter GDP estimate by
0.2 percentage point to 1.9 percent. Citigroup trimmed its
growth forecast by 0.3 of a percentage point to 2.4 percent.
"Although we would expect furloughs to continue shrinking in
an extended shutdown, the longer the delay in authorizing
spending, the greater the incidence of negative spillovers to
private activity will be," said Robert DiClemente, Citigroup
chief U.S. economist.
"The direct effects of lost hours in the government sector
in the fourth quarter would be reversed when workers return in
full force. But there may still be deadweight second-order drags
and uncertain effects from less supportive financial
For now, others are keeping their estimates unchanged.
"We are holding our call of 2.5 percent fourth-quarter GDP
growth for now, but are keeping the axe close at hand in case
the deal-making founders in any way and or the government
shutdown persists," said Douglas Porter, chief economist at BMO
Capital Markets in Toronto.
"Growth should rebound to 3.0 percent in first quarter of
2014 as furloughed civic workers spend their delayed salaries.
But this won't be the last time Washington bickers over
extending the government's funding and borrowing authority,"