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Government workers protest the government shutdown during a demonstration in the Federal Building Plaza on Jan. 10, 2019 in Chicago, Illinois.
J.P. Morgan economists said the government shutdown is beginning to take a bigger toll on the U.S. economy, and growth is now below 2 percent, despite resilience in the private sector.
The economists slashed their first quarter growth estimate to 1.75 percent from 2 percent, citing the shutdown. This is their second quarter point cut to the growth forecast in two weeks.
In general, economists have said that the economy is probably growing at the slowest pace this quarter, since President Donald Trump entered the White House in the first quarter of 2017. The government shutdown is exacerbating the already weaker growth pace, which is also impacted by an end of stimulus and trade wars.
The J.P. Morgan economists also raised second quarter growth to 2.25 percent from 2 percent, to account for a bounce back in that quarter once the government reopens.
The economists say 0.1 to 0.2 percentage points is subtracted from growth for each week the government is shut, but that is not the entire impact.
“That estimate solely accounts for the reduction in government sector output and does not incorporate any potential spillover effects into private economic activity. Fortunately, so far those spillovers look contained,” they said in a note.
They noted that weekly jobless claims data “is a comforting signal of the broader health of the economy, even after accounting for the usual noisiness of this indicator.” Claims for the week ended Jan. 19 were just 199,000, the first reading below 200,000 since 1969.
“States that have a larger federal presence have also had a larger increase in jobless claims over the past four weeks. That suggests that if the shutdown ends soon there is scope for further improvement in the claims data.”
Economists have said they can not get a true handle on how the economy is doing because of the key government data, which is unavailable due to the shutdown. For instance, monthly retail sales and durable goods data are not being released.
Meanwhile, government workers head for a second pay period without a check Friday, the 35th day of the shutdown.