One of President Trump’s top advisers said today that the partial government shutdown could suffocate the economy this quarter if it persists, leading to zero percent growth.
As the shutdown stretches into the 34th day and roughly 800,000 federal employees are poised to miss a second paycheck, Kevin Hassett told CNN that the shutdown could contribute to a dramatic drop in gross domestic product growth.
Hassett, chairman of the Council of Economic Advisers, added that first quarters generally show a marked decrease in GDP growth compared with other quarters because of “residual seasonality,” which describes the decrease in growth after heightened end-of-year spending.
But mixed with the shutdown, that growth can slow down as low as zero, he said.
“Could we get zero growth? I want to nail this down,” CNN’s Poppy Harlow asked Hassett.
“Yes. We could, yes,” Hassett responded. “If the shutdown extended for a whole quarter and given the fact that the first quarter tends to be low because of residual seasonality, then you could end up with a number close to zero in the first quarter.”
Analysts surveyed by Bloomberg News last week said that if the shutdown lasts through the end of March, it would subtract 0.8 percentage point from first-quarter growth, which would end up at 1.5 percent, based on median responses.
Estimates for GDP, based on an annualized pace, ranged from a contraction of 2 percent to growth of 3.3 percent.
The White House last week doubled its estimate of the cost of the shutdown on the economy.
Hassett said the new estimate of the cost to output is a reduction of 0.13 percentage point every week of closure.
One economist disputed Hassett’s estimate of the potential second-quarter rebound.
Such a projection “looks more like a full-throated prayer than a realistic forecast,” according to Bernard Baumohl, chief global economist at the Economic Outlook Group LLC, though he agreed first-quarter growth could edge close to zero if the shutdown endures through March.
“What apparently the CEA missed or grossly underestimated is the extent households will work in the second quarter to rebalance their finances after ramping up their credit card debt and depleting savings during the first three months of the year,” Baumohl wrote in a note. “Credit card usage by the 800,000 unpaid government workers and contractors will climb sharply in Q1 to pay for essentials. Others will dig deep into their savings.”
More than 800,000 federal workers have missed a paycheck since the shutdown started in December.
Thousands of federal employees have missed mortgage payments, relied on food pantries and struggled to make ends meet, and consumer sentiment has plunged during the battle between Trump and congressional Democrats.