The five-week partial shutdown of the Federal government caused disruption to Federal workers and Federal contractors, as well as to the overall economy.
Some reports are now being released that can help assess how damaging the shutdown was to the U.S. economy.
While some may hope that the economic impact of the shutdown would have been sufficiently damaging to the nation’s economy to convince politicians to avoid future shutdown threats, immediate measures indicate that the economic impact was muted.
The Bureau of Labor Statistics’s preliminary measure of the nation’s January unemployment level indicates that the partial Federal government shutdown contributed to an uptick in the number of unemployed nationwide.
BLS estimated that the total number of unemployed in January amounted to 6,535,000, an increase of 241,000 from December, which caused the monthly unemployment rate to tick up 0.1 percent. “Among the unemployed, the number who reported being on temporary layoff increased by 175,000. This figure includes furloughed federal employees who were classified as unemployed on temporary layoff under the definitions used in the household survey,” according to BLS.
There is some indication that the actual number of furloughed Federal employees was higher than the 175,000 number, but that some employees were miscounted during the survey. In a technical note, BLS said that there also was an increase in the number of federal workers who were classified as employed but absent from work. While these workers should have been counted as unemployed, it is BLS policy that “data from the household survey are accepted as recorded. To maintain data integrity, no ad hoc actions are taken to reassign survey responses.”
BLS also reported that “the number of persons employed part time for economic reasons (sometimes referred to as involuntary part-time workers) increased by about one-half million to 5.1 million in January. Nearly all of this increase occurred in the private sector and may reflect the impact of the partial federal government shutdown.”
In another measure of economic impact, the Labor Department’s Employment and Training Administration reported that the number of Federal Employees claiming unemployment benefits for the week ending January 26 rose to 40,112, an increase of 15,431 over the past week.
Since Federal workers who receive unemployment insurance benefits will have to pay them back when they receive their back pay, most likely a large number of furloughed workers did not apply for unemployment benefits so this count is artificially low and does not reflect the number of furloughed employees. Excepted Federal employees, those who were required to work unpaid during the shutdown, were denied unemployment insurance as they were not on furlough.
Impact on GDP
While the nation’s fourth quarter of 2018 and first quarter of 2019 gross domestic product (GDP) measure have not been issued yet, the Congressional Budget Office has published estimates of the shutdown.
They believe that the level of real GDP (that is inflation-adjusted) in the fourth quarter of 2018 was reduced by 0.1 percent. CBO estimates the level of real GDP in the first quarter of 2019 is expected to be reduced by 0.2 percent.
According to CBO, “in subsequent quarters, GDP will be temporarily higher than it would have been in the absence of a shutdown. Although most of the real GDP lost during the fourth quarter of 2018 and the first quarter of 2019 will eventually be recovered, CBO estimates that about $3 billion will not be. That amount equals 0.02 percent of projected annual GDP in 2019. In other words, the level of GDP for the full calendar year is expected to be 0.02 percent smaller than it would have been otherwise.”
Reasons for subdued impact on the economy
There are several reasons why the shutdown did not have a more profound impact on Americans.
First, the shutdown affected only part of the government. Many Federal agencies, including the Department of Defense, had received their appropriations and therefore had no need to furlough workers or contractors during the partial shutdown.
Second, even in affected agencies, many workers were listed as “excepted employees” who were required to work even though they were not receiving their pay. This included air traffic controllers and TSA employees. While there were minor disruptions and longer lines at some airports, overall most excepted employees continued to work as required by law.
In a related development, the Trump administration worked to minimize the effect of the shutdown on the general public by calling back workers during the shutdown. USDA’S Farm Service Agency (FSA) recalled thousands of workers to process and administer crop insurance and farm loan programs, as well as administering the government’s trade mitigation relief program for farmers.
More than 46,000 IRS employees were recalled to process tax refunds so taxpayers filing early would not see their refund payments delayed.
With approximately half of employees in agencies affected by the shutdown initially required to continue working without pay and with the addition of thousands more as the shutdown continued, many of the important functions of government continued without noticeably affecting the President’s supporters.
Finally, while the shutdown was the longest on record, there have been 10 shutdowns since 1980 that have involved furloughing Federal employees, some for as short as one day.
The public and the media have gotten more comfortable with the idea of parts of the government on furlough without major ramifications and assume that political issues will be resolved along with Federal employees being reimbursed for any lost pay.
Even with the most recent shutdown lasting five weeks, it did not go on long enough to significantly effect the day-to-day lives of most supporters of the President.
Can another shutdown happen?
This most recent partial closure of the Federal government was resolved only by agreement to reopen the government until February 15 with the possibility that furloughs could be reinstated if Congress and the President cannot agree to fund agencies beyond that date.
If the most current furloughs had caused significant political damage to either side, then it might have given politicians an incentive to avoid future shutdowns, even when agency budgets lapsed. A severe hit to the economy might have caused this type of damage.
Unfortunately, looking at the economic data so far, neither side suffered sufficient economic pressure to avoid another round of furloughs if they believe it politically necessary.
While a net loss of $3 billion to the U.S. economy sounds like a large amount, it is only a 0.02 percent hit spread over a nominal (current dollar) GDP of $19.39 trillion.
Opponents of the President may increase their level of disapproval due to the shutdown, but their views towards him were already negative.
Meanwhile, the President’s support level remains above 40 percent. In fact, his decision to temporarily reopen the government may have cost him more support than his original decision to furlough thousands of Federal workers.
Unless a Federal government shutdown were to have greater consequences by affecting more Federal agency services for a longer time period, the threat of furloughs remains a potent political weapon if managed correctly by either political party.