“Uncertainty is adding to the gloom,” along with concerns about the fading boost from tax cuts and government spending stimulus, geopolitical risks and higher borrowing costs, said Bernard Baumohl, chief global economist at the Economic Outlook Group LLC. “With every week, the shutdown has an incrementally larger impact.”
“That’s begun to cast a dark picture among many business leaders, certainly among CFOs, that the economy is in trouble and could end up in a recession,” Baumohl said. He doesn’t forecast a recession this year, and estimates a one-in-three chance of a slump next year.
The shutdown also may affect the jobless rate, as hundreds of thousands of furloughed government workers could be classified as unemployed. The survey median is for a January unemployment rate of 4 percent, rather than holding steady or edging down from December’s 3.9 percent amid the strong labor market.
The White House on Tuesday doubled its estimate of the cost of the government shutdown on the economy -- saying it hadn’t been counting the effects on more than 1 million government contractors. Council of Economic Advisers Chairman Kevin Hassett told reporters the administration’s new estimate of the shutdown’s cost to economic output is a reduction of 0.13 percent every week, not 0.1 percent every two weeks as previously estimated.
The shutdown and China trade war could be enough to tip the U.S. economy into a contraction this year, Deutsche Bank Chief International Economist Torsten Slok said in a Bloomberg Television interview this week. “If the government shutdown continues, it could cause a recession,” he said. “Uncertainty is intensifying, and the more anecdotes that come out, the more worried you get.”
Ronald Paul, chief executive officer of Eagle Bancorp Inc. in suburban Washington, said on a conference call this week that if the shutdown goes beyond January, “it would begin to impact not only federal employees, but also smaller government contractors, and have a ripple effect on local retail businesses.”
This article provided by Bloomberg News.