A possible government shutdown next week will damage the economy in four significant ways as federal activity grinds to a halt, echoing the effects of the 2013 closure, according to Goldman Sachs Group Inc.
The U.S. government’s spending authority expires on Sept. 30 and an extension plan will hinge on congressional debate over public funding for the Planned Parenthood Federation of America. A budgetary impasse may lead to a shutdown similar to the standstill that followed heated disagreement over the Affordable Care Act two years ago.
The U.S. economy will shrink in inflation-adjusted terms by 0.2 percentage point for each week the government is closed, Goldman economists Jan Hatzius and Alec Phillips estimated
in a Sept. 21 report obtained by Newsmax Finance.
The Commerce Department said gross domestic product
likely grew 3.7 percent in the second quarter from a year earlier. That expansion included $121.1 billion of inventories
that piled up faster than Wall Street economists had forecast.
Goldman said a shutdown will hit the economy in four ways:
- Lost pay to furloughed federal workers.
- Reduced federal purchases of goods and services.
- Halted private-sector activities awaiting government action or approval.
- Shock to confidence on employment, investment and consumer spending.
“If a shutdown occurs next week and were handled the same way as prior shutdowns, about 40 percent of federal workers would be sent home … representing about $2 billion in lost compensation for each week that funding lapsed,” the report said.
The effect would be reversed in the first quarter of 2016 if the government gets back to work.
The last government shutdown overlapped with a deadline that capped the government’s ability to borrow money.
Goldman estimates the debt limit won’t be reached again until mid-November, or possibly six weeks after the government’s spending authority expires.
“The current debate does not involve the debt limit. However, Congress looks increasingly likely to set the next expiration of spending authority around the time of the debt limit deadline,” the New York-based bank said. “Absent an increase in the debt limit, Treasury’s cash balance would probably run dry sometime by early December.”
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