Shutdown cost US economy $24B: S&P

WASHINGTON, USA – The partial US government shutdown has taken $24 billion out of the economy and will cut growth in the 4th quarter significantly, ratings firm Standard & Poor’s said Wednesday, October 16.

Moreover, S&P warned of more possible damage if the political battle over the budget and debt ceiling resumes in January, further scaring consumers, especially government workers laid off without pay during the shutdown.

As Congress appeared to strike a deal Wednesday to resolve the stalemate over a new budget and raising the debt ceiling, S&P said the impact of the two-week-old shutdown likely will take 0.6 percentage points off 4th quarter growth.

That would leave annualized growth in the October-December period at close to a sluggish 2% rate, the ratings agency said.

The fall in growth is mostly due to the furlough of hundreds of thousands of civil servants, as well as impacted government contractors, because the Congress could not agree a budget for the 2014 fiscal year that began October 1.

The civil servants have not been paid for their weeks off, but Congress is expected to reinstate their wages.

With that money back in their pockets, some economists have forecast a bounce back in the economy in the first quarter.

But S&P pointed out that the deal reached tentatively on Wednesday in Congress only would fund the government through January 15, and raise the debt ceiling to February 7.

That portends potentially a fresh political crisis over both, and could frighten consumers from spending during the first quarter as well.

“The bottom line is the government shutdown has hurt the US economy,” S&P said.

“The short turnaround for politicians to negotiate some sort of lasting deal will likely weigh on consumer confidence, especially among government workers that were furloughed.”

“If people are afraid that the government policy brinkmanship will resurface again, and with it the risk of another shutdown or worse, they’ll remain afraid to open up their checkbooks. That points to another Humbug holiday season.”

S&P dealt the government its first-ever credit rating downgrade — to AA+ from AAA — in August 2011, the last time politicians went to the brink of default on the debt over differences on the budget. – Rappler.com