Shutdown Poses Increasing Economic Risk01/24 06:13

Shutdown Poses Increasing Economic Risk01/24 06:13

   The shutdown's biggest effect on the economy is likely to be the cutback in 
federal spending. But consumer spending, which is critical to growth, is 
another important factor.

   WASHINGTON (AP) -- At this time of year, John Sprinkle and his wife would 
normally be planning their summer vacation. Not now. Sprinkle, a furloughed 
federal employee, is about to miss his second paycheck since the partial 
government shutdown began just before Christmas.

   With no end in sight to the longest shutdown in American history, Sprinkle 
and his family are postponing all manner of spending.

   "We were thinking of getting a new computer, but that's not going to 
happen," he said. "We're not really eating out like we normally would be. We 
are not going out to events like we would be."

   Multiply those decisions by 800,000 federal employees across the country and 
hundreds of thousands of government contractors who aren't being paid either, 
and the shutdown looms as an accelerating threat to the wider economy.

   The shutdown's biggest effect on the economy is likely to be the cutback in 
federal spending. But consumer spending, which is critical to growth, is 
another important factor.

   When government employees spend less, stores and restaurants that serve them 
suffer. So do landlords and lenders that do business with federal workers. 
Though spending and growth will rebound once the government reopens, most of 
the restaurant meals missed and hotel stays canceled will never be made up.

   "Creditors and suppliers hit by the shutdown will become less patient if it 
drags on," Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in 
a research note. "People and businesses are being hurt by the shutdown, and the 
pain will intensify."

   If the shutdown drags on through March, annual economic growth could fall to 
zero in the first three months of the year. Even if the government reopens by 
the end of the month, the annual pace of growth could be a meager 1.6 percent 
--- only half the pace of last quarter, said Sal Guatieri, senior economist at 
BMO Capital Markets.

   Kevin Hassett, a top White House economist, acknowledged in an interview on 
CNN that growth could be flat in the first quarter, though Hassett suggested 
that a "humongous" rebound would follow. Yet some independent economists doubt 
that the rebound would be enough to offset the initial damage. The economy is 
already bedeviled by slowing global growth, ongoing trade tensions and higher 
interest rates, which contributed to a plunge in home sales last month.

   Bernard Baumohl, chief economist at the Economic Outlook Group, suggested 
that once the government reopened, many households would focus on repaying 
credit card debt and restoring lost savings --- trends that would slow the 
rebound.

   For now, there are hints that the shutdown is slowing retail sales. A 
measure of weekly chain store sales fell 1.3 percent last week, its second 
straight drop. Cold weather likely contributed to the fall, said Michael 
Niemira, chief economist at the consulting firm Retail Economist, but the 
shutdown may also have contributed.

   It's hard to know just how much the shutdown is depressing consumer spending 
because the Commerce Department, which compiles and reports such data, was 
itself closed by the shutdown.

   Anecdotal evidence, though, suggests that the trend is spreading. Even 
federal workers with solid finances are holding back. Sprinkle, who lives in 
Alexandria, Virginia, knows he will eventually be paid, and his wife is still 
earning a paycheck. Their two children are out of the house, in college, and he 
knows he could borrow against his home equity if he had to.

   Still, "the effect is more psychological," he said.

   The shutdown began on the day of his 20th anniversary working for the 
National Park Service, where he is now a historian. His Mac computer is roughly 
eight years old and will no longer update with the latest operating software. 
But he is postponing a replacement.

   The impact of the shutdown is evident beyond Washington. Officials in New 
Orleans announced Wednesday that they are waiving late fees for federal workers 
who have fallen behind on their property taxes.

   Also Wednesday, in Philadelphia, a hunger relief organization set up a 
market for furloughed federal workers under an Interstate 95 overpass. Stefanie 
Arck-Baynes, a spokeswoman for the group, Philabundance, said they had expected 
150 to 300 people. But by 11 a.m., they had already served 300, and the lines 
were growing.

   The organization extended the hour-long event to meet demand. Tables were 
set up with lines of fresh produce, bread, milk and canned goods.

   It was the first time the group had offered an "emergency food response" in 
Philadelphia in its 35-year history, Arck-Baynes said.

   James Grant was there stocking up on fresh fruits and vegetables. At 64, he 
is diabetic and must take care with his diet. Grant has worked for 40 years as 
a maintenance engineer at Independence National Historical Park, which includes 
Independence Hall, the First Bank of the United States and the Liberty Bell.

   The shutdown, of course, also affects millions of relatives of federal 
workers. Grant has an adult son who is in a nursing home after becoming 
disabled years ago in a car accident. He said he has had to stop sending him 
money.

   In Washington, D.C., on Tuesday night, Hannah Perry was one of dozens who 
lined up at World Central Kitchen, which offered free food and coffee to 
federal workers. The kitchen is a charity headed by celebrity chef Jose Andres 
that began in 2010 to feed survivors of a massive earthquake in Haiti.

   Perry, 23, who works as a program assistant at the National Science 
Foundation, is struggling to pay her rent, student loans and health care bills.

   She has applied for unemployment benefits and shifted to a different student 
loan repayment plan under which she will pay $98 a month, a third less than her 
previous payment. But that plan required her to accept a higher interest rate 
that will raise the total cost of the loan, a small example of the potential 
lingering effects of the shutdown.

   What will she do if the shutdown continues for weeks on end?

   "If it extends for a really long time, I have no idea," she said.


(KA)

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