Government shutdown cost the economy $11 billion: CBO

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Marie Owens Powell holds a placard stating ‘Pay us for our work’ while demonstrating with Philadelphia Airport TSA and airport workers outside the Philadelphia International Airport on January 25, 2019 in Philadelphia, Pennsylvania.

The federal government shutdown cost the economy $11 billion, according to a new analysis from the nonpartisan Congressional Budget Office, reflecting lost output from federal workers, delayed government spending and reduced demand.

The report, which was released Monday, estimated a hit of $3 billion, or 0.1 percent, to economic activity during the fourth quarter of 2018. The impact was greater during the first quarter of 2019: $8 billion, or 0.2 percent of GDP.

Although most of the damage to the economy will be reversed as the government re-opens and workers return to their jobs, the CBO estimated $3 billion in economic activity is permanently lost.

“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,” the report says. “Some of those private-sector entities will never recoup that lost income.”

The analysis does not incorporate some indirect effects of the shutdown, such as the halt in some federal permits and reduced access to loans.

However, the report suggests that businesses were beginning to postpone investment and hiring decisions as a result of the shutdown and warned that the risks were becoming “increasingly significant” as the impasse dragged on.

The CBO’s annual report also looked at the impact of the administration’s trade policies on the economy. It estimates that new tariffs on imports and exports will shave an average of 0.1 percent from economic growth through 2029. It also forecast customs duties will rise from 0.2 percent of GDP in 2018 to 0.3 percent of GDP this year.

Overall, the CBO projected economic growth will slow this year to 2.3 percent, compared to the 3.1 percent rate last year, as the benefits of the new tax law begin to fade. Through 2023, growth is expected to average 1.7 percent, below the CBO’s estimate of the economy’s potential.