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- Kevin Hassett, the chair of President Donald Trump’s Council of Economic Advisers, said US economic growth could be zero for the first quarter if the government shutdown continues.
- “If it extended for the 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 very close to zero,” Hassett told CNN.
- But Hassett said growth would bounce back once the government reopens.
- Hassett dismissed worries that the US’s credit rating could be downgraded because of the shutdown.
- A growing number of economists are warning that the shutdown could seriously hurt US gross domestic product.
Kevin Hassett, the chair of President Donald Trump’s Council of Economic Advisers, offered a frank assessment of the cost of the ongoing government shutdown, warning that the closure could result in a mess for the US economy.
Hassett told CNN in an interview on Wednesday that US economic growth could be zero for the first quarter if the partial federal government shutdown lasts through March – a warning some Wall Street economists have also issued.
“If it extended for the 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 very close to zero,” Hassett told CNN.
But Hassett argued that gross domestic product would be likely to bounce back in the second quarter should the government reopen and workers receive back pay.
Some 420,000 of the 800,000 federal workers not getting paid are set to automatically get back pay when the government reopens, and Congress passed a bill last week to give the other 380,000 furloughed workers back pay as well.
Hassett brushed off worries that the political fight over the shutdown could lead to a downgrade of the US’s credit rating. Fitch, one of the main credit-ratings agencies, has warned that the shutdown could affect the country’s rating.
“I don’t think a downgrade is in play, but I do think that we’re in a world where we’ve had I think now 21 government shutdowns since the 1970s, and this brinksmanship is something that goes on and on,” Hassett said, adding, “But I don’t think that there’s any risk at all, given how strong the economy is, that we’ll be downgraded.”
The only time a major agency has downgraded the US’s credit rating was when S&P did so during the fight over the debt ceiling in 2011.
The warning, though hedged, comes as more and more economists estimate that the government shutdown’s effect on GDP is growing. Even the White House’s own model was updated to show that the shutdown could shave 0.13 percentage points off first-quarter GDP every week. This was an increase from previous estimates, as the White House factored in the effect on federal contractors.
The major concern is that the 800,000 federal workers and tens of thousands of government contractors who are going without pay during the shutdown not only are losing out on wages but are not spending in the economy.
As the shutdown, now in its 33rd day, drags on – and so far it shows no sign of stopping – more money is missing from the economy.
This is likely to produce a drag on overall economic growth. Add on, as Hassett mentioned, the fact that the first quarter is typically weaker because of data-calculation issues, and the possibility of negative growth grows.