GDP Estimates Tumbling Due to Shutdown: Build a Wall and Crime Will Fall

BUILD A WALL & CRIME WILL FALL! This is the new theme, for two years until the Wall is finished (under construction now), of the Republican Party. Use it and pray!

— Donald J. Trump (@realDonaldTrump) January 23, 2019

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Have to admit, that’s a catchy slogan.

Zero Growth

Bloomberg reports White House Says U.S. Could See Zero Growth This Quarter With Shutdown.

White House Council of Economic Advisers Chairman Kevin Hassett said that if the partial government shutdown extends through March, there’s a chance of zero economic expansion this quarter, though “humongous” growth would follow once federal agencies reopen.

Asked in a CNN interview Wednesday if the U.S. could see zero growth with the shutdown, Hassett responded, “Yes, we could, if it extended for the whole quarter.”

“It is true that if we get a typically weak first quarter and extended shutdown that we could end up with a number that is very low,” or “very close to zero,” Hassett said. He added that he sees the chance of a recession in 2020 as “very, very close to zero.” Growth could rebound to “4 or 5 percent” in the second quarter if the government reopens, he said.

Analysts surveyed by Bloomberg News last week said that if the shutdown lasts through the end of March, it would subtract 0.8 percentage point from first-quarter growth, which would end up at 1.5 percent, based on median responses. Estimates for GDP, based on an annualized pace, ranged from a contraction of 2 percent to growth of 3.3 percent.

Missing Paychecks Starting to Bite

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Damage Piling Up

The New York Times Reports Shutdown’s Economic Damage Starts to Pile Up, Threatening an End to Growth.

The revised estimates from the Council of Economic Advisers show that the shutdown, now in its fourth week, is beginning to have real economic consequences. The analysis, and other projections from outside the White House, suggests that the shutdown has already weighed significantly on growth and could ultimately push the United States economy into a contraction.

While Vice President Mike Pence previously played down the shutdown’s effects amid a “roaring” economy, White House officials are now cautioning Mr. Trump about the toll it could take on a sustained economic expansion. Mr. Trump, who has hitched his political success to the economy, also faces other economic headwinds, including slowing global growth, a trade war with China and the waning effects of a $1.5 trillion tax cut.

For now, the White House shows no signs of being ready to relent, and Kevin Hassett, the chairman of the Council of Economic Advisers, continued to blame Democrats for the economic damage.

Mr. Hassett said on Tuesday that the administration now calculates that the shutdown reduces quarterly economic growth by 0.13 percentage points for every week that it lasts — the cumulative effect of lost work from contractors and furloughed federal employees who are not getting paid and who are investing and spending less as a result. That means that the economy has already lost nearly half a percentage point of growth from the four-week shutdown. (Last year, economic growth for the first quarter totaled 2.2 percent.)

“The economy could easily stall in the first quarter, and then the question is what happens in the second” if the shutdown persists, said Ian Shepherdson, the chief economist at Pantheon Macroeconomics. “The longer it goes on, the longer it takes to recover.”

If the shutdown continues through the end of March, Mr. Shepherdson said in a research note, he would expect the economy to shrink in the first quarter. While federal workers are likely to receive back pay once the furlough ends, most government contractors will not, and the longer spending is depressed, the higher the risk that the businesses they run or patronize will fail, Mr. Shepherdson said.

Will a catchy new slogan win the day?

If not, Trump will have to declare an emergency if he wants his wall.

Mike “Mish” Shedlock