The partial government shutdown this month trimmed 0.25 percentage point from fourth-quarter economic growth and cost the U.S. 120,000 jobs in October, President Barack Obama’s chief economic adviser said.
An analysis of daily and weekly economic data through Oct. 12 showed weakness in such areas as retail sales, economic confidence and mortgage applications, some of which was directly related to the 16-day shutdown, said Jason Furman, head of the Council of Economic Advisers.
“This all just really underscores how unnecessary and harmful the shutdown and the brinkmanship was for the economy, why it’s important to avoid repeating it,” Furman said at a White House briefing today.
The administration released a report on the CEA’s findings today, the same day a separate Labor Department report showed that job growth slowed in the month before the shutdown began. The White House may use the projections to bolster its bargaining position as talks get under way with Congress to meet a December deadline for a revenue and spending plan.
The White House figures “may prove to be a little bit conservative,” said Russell Price, senior economist at Ameriprise Financial Inc. (AMP) in Detroit. He forecast the shutdown would shave as much as 0.5 percentage point from fourth-quarter gross domestic product.
“You had a precipitous decline in business confidence and consumer confidence,” he said.
Attempts to estimate the impact of the shutdown were difficult because most economic data reported by the government was delayed by the shutdown, according to the report.
To make up for the lack of data, White House economists created an index of eight economic variables, including weekly claims for jobless benefits, which continued to be reported during the shutdown, as well as private data on retail sales, consumer confidence, steel production and mortgage applications.
The index (SPX) “fell very sharply in the first 12 days of October,” Furman said.
The impact of that standoff is “a clear story” told through private-sector forecasts and data, Furman said. “It was a significant and unnecessary self-inflicted wound that we shouldn’t be repeating,” he said.
Because the data are only for the first 12 days of the month, the figures may change “and could potentially get worse,” Furman said.
Average monthly job growth for the U.S. this year has been 182,000. The shutdown began Oct. 1. In September, employers added 148,000 workers to payrolls, which was fewer than projected, according to Labor Department figures released today. That followed a revised 193,000 gain in August that was larger than initially estimated. The unemployment rate fell last month to 7.2 percent, the lowest level since November 2008.
U.S. stocks rose with Treasuries as the payrolls report spurred speculation that the Federal Reserve won’t rush to withdraw stimulus. The Standard & Poor’s 500 Index advanced 0.6 percent to 1,754.67 at 4 p.m. in New York, reaching a record high for a fourth straight day. Ten-year (USGG10YR) Treasury yields fell 9 basis points to 2.51 percent, the lowest since July.
Last week’s deal to end the shutdown and avert the threat of a U.S. default followed a stalemate that began when House Republicans tried to force a delay in the Affordable Care Act, Obama’s signature health-care law. The accord sets a Dec. 13 date for completing the budget talks that opened Oct. 17. It funds government operations through Jan. 15 and suspends the debt limit through Feb. 7.
Stephen Stanley at Pierpont Securities LLC in Stamford, Connecticut, said he assumes the losses cited by Furman would be the result of people who were laid off during the month because of the ripple effects of shutdown, thus subtracting from the total number of Americans employed and the total gain in payrolls.
“The problem for us really is that when the October employment numbers come out in a few weeks, we’re not going to be able to isolate that,” Stanley said. “Let’s say that 5,000 workers at restaurants were furloughed because of the government shutdown, we’re not going to be able to account for that specifically within the payrolls numbers.”
Standard & Poor’s estimated that the partial federal shutdown took at least $24 billion out of the U.S. economy. The ratings company forecast 2 percent annualized growth in the fourth quarter, down from the 3 percent seen last month.
Private forecasts are for economic growth in the fourth quarter to be 0.2 to 0.6 percentage point lower than was predicted before the shutdown.
Price said lawmakers risk adding to the impact on the economy if they fail to meet their deadline for budget deal.
“When when that news hits that they’re still not able to find a conciliatory budget, that could further impact the holiday spending season,” Price said.