Shutdown projected to cause $3B permanent hit to U.S. economy

CBO predicts that just $3 billion in lost gross domestic product will be permanently lost

The federal government shutdown will cause slight permanent harm to the economy — about $3 billion — according to a report Monday by the Congressional Budget Office.

The report says the five-week shutdown has slowed growth in the near term but that most of the lost growth “will eventually be recovered.”

Overall, CBO predicts that just $3 billion in lost gross domestic product will be permanently lost, a modest figure in a $20 trillion-plus economy. By year’s end, CBO says, GDP would be just 0.02 smaller because of the shutdown, which shuttered many domestic agencies. Most of the 800,000 furloughed federal workers are returning to their jobs Monday.

More broadly, the report estimates a drop in GDP growth to 2.3 per cent this year as the effects of President Donald Trump’s tax cut on business investment begin to drop off. It also says that the U.S. budget deficit will hit $897 billion this year.

READ MORE: Workers to get paid ‘in the coming days’

The CBO credits the 2017 tax bill — which cut corporate and individual income taxes by $1.9 trillion over a decade — with a burst in growth last year, but it says that this year “the boost that recent tax legislation gave to business wanes.”

The report comes as the government is reopening after a 35-day partial shutdown. The CBO says the shutdown will have a modest negative impact on the economy, lowering projections of economic growth by 0.4 percentage points to 2.1 per cent in the first quarter, though the economy is expected to mostly make up for it over the rest of the year.

“The shutdown dampened economic activity mainly because of the loss of furloughed federal workers’ contribution to (gross domestic product), the delay in federal spending on goods and services, and the reduction in aggregate demand,” the report said.

“Underlying those effects on the overall economy are much more significant effects on individual businesses and workers,” CBO said. “Among those who experienced the largest and most direct negative effects are federal workers who faced delayed compensation and private-sector entities that lost business. Some of those private-sector entities will never recoup that lost income.”

The CBO Report predicts a $118 billion increase over last year’s $779 billion deficit. It predicts that the economy will grow by 2.3 per cent this year, a slowdown from 3.1 per cent last year. Unemployment would fall to 3.5 per cent in the second half of the year, its lowest point since the 1960s.

READ MORE: Trump announces deal to end record-long shutdown

The report lands in a divided Washington, where neither Trump nor Democrats controlling the House are expected to make curbing the deficit a priority. In fact, Trump and lawmakers are likely to increase spending for the Pentagon and other federal agencies, which would otherwise face cuts from outdated budget caps that are the remnant of the 2011 budget deal. And Congress is ultimately going to face pressure to make permanent provisions of the 2017 tax cuts for individuals that would otherwise expire in 2025.

“Republicans’ massive tax giveaway to millionaires and big corporations is inflicting serious damage on our budget outlook,” said House Budget Committee Chairman John Yarmuth, D-Ky. “We are facing trillion-dollar deficits and an increasingly bleak fiscal future.”

The agency also predicts that Trump’s trade policies — higher tariffs on Chinese goods and products such as imported steel — would have only a relatively modest negative impact on the economy.

Andrew Taylor, The Associated Press

Like us on Facebook and follow us on Twitter.

Just Posted

Casting call issued for new WL Studio Theatre musical

The WLST will be taking actors and audiences to a musical theatre version of Ancient Rome

Boys and Girls Club street party receives carnival makeover

All families are welcome to attend this event for free

Art Walk 2019 features artists old and new

Get to know some of the artists contributing their talent this year

Local family grieves loss of son after Highway 97 collision

Jose Jackson is the second person to die as a result of the Aug. 2 incident

VIDEO: Langley Ribfest met with protesters

Groups that oppose the event for various reasons plan to be on site each of the three days.

Canadians killed in Afghanistan honoured during emotional dedication ceremony

One-hundred-fifty-eight Canadian soldiers died during the mission

It’s snow joke: Up to 30 cm of snow expected to fall in northeastern B.C.

Alaska Highway, Fort Nelson to be hit with August snowstorm, according to Environment Canada

‘I’m just absolutely disgusted’: Husband furious after B.C. Mountie’s killer gets day parole

Kenneth Fenton was sentenced to prison after he fatally struck Const. Sarah Beckett’s cruiser

Sea-to-Sky Gondola in B.C. likely out of commission until 2020

Sea to Sky Gondola carries between 1,500 and 3,000 people every day during the summer season

Helicopter-riding dog Mr. Bentley now featured on cans of new B.C.-made beer

Partial proceeds from every pack go to Children’s Wish

PHOTOS: Weapons seized at Portland right-wing rally, counterprotests

Not all who gathered Saturday were with right-wing groups or antifa

Discussion on grief and loss between Stephen Colbert, Anderson Cooper goes viral

The exchange includes emotional question from Cooper, and outlook on grief as a child

Toronto activist calling on federal parties to nominate more black candidates

Fewer than 20 black Canadians have been nominated so far, including some Liberal MPs seeking re-election

Most Read