With the government shutdown now in its twenty-seventh day, there really is nothing new to report from Washington. As has been the case for days now, there don’t appear to be any active negotiations going on among any of the relevant parties in Washington, D.C. The only significant development yesterday other than Speaker Pelosi seemingly repealing the invitation issued to the President to deliver the State of the Union Address on January 29th, it appears likely that both the House and the Senate will cancel the two-week recess that was scheduled to begin this weekend unless the shutdown is resolved beforehand, something that seems entirely unlikely. If anything, the current momentum appears to be that the shutdown will continue into the weekend and into next week and that Federal Government workers impacted by the shutdown will once again fail to receive a paycheck, their second of the month. In addition, the shutdown will continue to impact sectors of the economy well beyond the immediate universe of Federal workers, including contractors, suppliers, and the numerous national and local businesses, big and small, that indirectly rely on people who work for the Federal Government.
As Politico’s Ben Smith notes, this is causing some economic analysts to become increasingly worried about the shutdown leading to an economic slowdown:
The partial government shutdown was supposed to be a brief non-event for the economy. Now it’s starting to look like a serious crisis that could nudge the U.S. toward recession and threaten President Donald Trump’s economic message during his reelection campaign.
Across Wall Street, analysts are rushing out warnings that missed federal paychecks, dormant government contractors and shelved corporate stock offerings could push first-quarter growth close to or even below zero if the shutdown, which is wrapping up its fourth week, drags on much longer.
Their broader fear: The protracted impasse could convince consumers and businesses that the federal government will spend all of 2019 on the brink of crisis — whether on the border wall, trade with China or the debt limit. That could choke business investment and consumer spending, bringing an end to one of the longest economic expansions on record.
Recessions don’t just happen, after all. They are usually triggered by largely unforeseen shocks to the system, like the tech over-investment and dot-com crash of the late 1990s or the credit crisis of 2008. The government shutdown is not there yet. But the longer it drags on, the closer it gets.
“You can take the ruler out right now and calculate the exact impact from missed paychecks and contracts and you don’t have to go many months to get to zero growth,” said Torsten Slok, chief international economist at Deutsche Bank. “But this is not just some linear event. It can get exponentially worse in very unpredictable ways, from government workers quitting, to strikes, to companies not going public. It’s no longer just a political sideshow, it’s a real recession risk.”
Part of the reason for the increased alarm is that economists and Wall Street forecasters were already worried about the direction of the economy in 2019 as stimulus from the big tax-cut bill fades, growth slows outside the U.S. and Trump’s trade battles send shock waves through the stock market. Consensus estimates for growth this year were already down to under 3 percent before the shutdown.
Now some are slashing their estimates even further. Ian Shepherdson of Pantheon Macroeconomics this week said if the shutdown lasts through March it could push first-quarter growth below zero, a sentiment echoed by J.P. Morgan Chase CEO Jamie Dimon on the bank’s earnings call on Tuesday in which he implored Trump and Congress to make a deal.
Even the White House itself is admitting that the shutdown will have an impact on the economy that is not going to be reversed even if it were to end today. The President’s own Council of Economic Advisers, for example, acknowledged on Tuesday that the shutdown will have a real impact on economic growth, with the impact being roughly double what it first forecast. This could mean that first-quarter economic growth will end up below an annualized level of two percent. Given the fact that he had promised sustained growth at three percent or higher, and that he touted the fact that GDP had exceeded those numbers during the third quarter, President Trump is not going to like those numbers. And speaking of numbers, the shutdown is continuing to have a negative impact on the President’s job approval numbers. The RealClearPolitics average now puts his disapproval number at 55.7% and it’s rapidly heading upward, while the FiveThirtyEight average puts the number at 54.9%. Even Rasmussen, the President’s favorite poll, puts the President’s disapproval number at 55%. Additionally, polling continues to show that most Americans hold the President responsible for the shutdown and do not support the border wall. As the shutdown drags on, these numbers are only going to get worse, and this will be especially true if the economy is negatively impacted as the forecasters are predicting.
Of course, while these numbers are significant and would cause any normal politician and any normal President that they needed to act to bring an end to this shutdown, it’s worth remembering that the President is not a normal politician and hardly a normal President. The fact that most voters and most Americans appeared to be arrayed against him, or even that his party suffered its worst loss in the House of Representatives since the 1974 elections held in the wake of Watergate and President Nixon’s resignation, seems to have had any impact on him or his approach to governing. In his mind, as long as his base is happy then he’s doing the right thing and, so far at least, the same polls that show the public as a whole turning further against him show his base remaining relatively old. This can be seen in the same poll numbers I reference above. While there has been a significant jump in the President’s disapproval, his approval has only fallen from 42.5% to 41% according to RealClearPolitics, and from 42.2% to 40.2% according to FiveThirtyEight. This is essentially the same 40% floor the President has stayed above for most of his Presidency, and it indicates that his base remains loyal to him. As long as that’s the case, this President seems likely to stick to his current intransigence.
