How much will the US shutdown drag on GDP growth

Tom McKay
Tom McKay Livewire

How much will the US shutdown drag on GDP growth? Although the extent of the damage to be caused by the government shutdown is still uncertain, based on previous shutdowns, quarterly GDP growth could lose as much as 0.4 percentage points. This was the case in the last shutdown of 1995-6 where nondefense federal spending in the fourth quarter of 1995 sliced about 0.4 percentage points from that quarter's GDP growth. Although some of that missed output was made up in subsequent quarters, real nondefense government spending didn't return to its pre-shutdown level until 5 quarters later. The critical difference between then and now is that the late-1990s economy was strong, powered by new technologies. Growth from the private sectors easily offset the shutdown drag. The current recovery is quite mild and a substantial drop in the federal government spending will be harder to absorb. (VIEW LINK)

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