A temporary shutdown of the federal government will cost the U.S. at least $300 million a day in lost production, IHS Inc. reports.
Though this is merely a small fraction of America’s $15.7 trillion economy, the financial impact of a shutdown is predicted to gradually increase due to its effect on spending from businesses and consumers.
Bloomberg reports that Lexington, Massachusetts, global market research firm IHS estimates that its predicted 2.2% annual growth in the fourth quarter will be reduced to 0.2% by next week should the government remain inactive.
A 21-day shutdown like the one in 1995 could cut growth by 0.9 to 1.4%, according to Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia.
“Government spending touches every aspect of the economy, and disruption of spending, more than the direct loss of income, threatens to damage investor and business confidence in ways that can seriously harm economic growth,” LeBas told Bloomberg.
Barack Obama said a government shutdown “would throw a wrench into the gears of our economy,” yesterday at the White House.
“The idea of putting the American people’s hard-earned progress at risk is the height of irresponsibility, and it doesn’t have to happen.”
Bank of America Merrill Corp. predicts that a two-week shutdown would reduce federal fourth-quarter growth by 0.5%, while a month-long shutdown would take 2 percentage points from our GDP.
Economists are also concerned about the effect the shutdown will have on the housing market, which accounts for roughly 70% of the economy. Until the shutdown ends, the government will not be able to grant loans for those looking to take out mortgages on homes.
Teresa Johnson, who works for the Transportation Security Administration, told Bloomberg that the shutdown affects many single mothers in her position.
“The shutdown affects me greatly.” said Johnson, 47. “I have a mortgage, and I’m the sole provider for my two daughters, one of whom is in college.”
Another huge issue is the looming debt ceiling, which Congress must agree to raise by October 17 for the U.S. Treasury to continue borrowing the money needed to run most of its programs.
Treasury Secretary Jacob J. Lew has said that failing to raise the U.S.’s borrowing limit would risk putting the country into a “catastrophic” state of default.
Via: Bloomberg, Top Photo Courtesy: Wiki Commons