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Shutdown Threatens US Economy

Experts fear lack of consumer confidence could slash growth. Shutdown costs $300 million per day.
By Maayana Miskin
First Publish: 10/3/2013, 8:19 AM

U.S. Congress
U.S. Congress
AFP photo

The partial shutdown of the United States federal government could have a serious impact on the country’s economy, financial experts have warned.

HIS Inc. has stated that the shutdown will cost at least $300 million in lost economic output. Roughly 800,000 of America’s 1.4 million federal workers have been sent home, a step expected to significantly reduce the GDP for the quarter.

But what has economists even more concerned is the impact on consumer confidence.

“Government spending touches every aspect of the economy, and disruption of spending, more than the direct loss of income, threatens to damage investor and business confidence in ways that can seriously harm economic growth,” expert Guy LeBas of Janney Montgomery Scott LLC warned, speaking to Bloomberg News.

Matthew O’Brien of the Atlantic put it in simple terms, “Frightened households, of course, are households that don’t spend. At least not as much.” The shutdown could mirror the debt ceiling crisis two years ago in dealing a blow to consumer confidence with months-long effects, he said.

An Economic Confidence poll by Gallup showed a drop in confidence as threats of a shutdown began to emerge.

The partial shutdown – the first in the U.S. in 17 years – began this week as part of a standoff over healthcare reforms. Republicans in Congress are insisting on significant changes to a health care law backed by U.S. President Barack Obama.

The controversial proposed law aims to slash the rate of Americans without health insurance. The act would work to expand both public and private insurance coverage and reduce the costs of healthcare. It would also require the uninsured to purchase coverage by January or pay a fine.

The bill’s supporters argue that Americans will “get more and pay less” under the new regulations, and that the bill will strengthen existing insurance programs. Opponents say it threatens job growth by forcing employers to shoulder more of the burden of insurance costs, and will increase government spending.

Obama sent a defiant message Tuesday, declaring, “As long as I am president, I will not give in to reckless demands by some in the Republican party to deny affordable health insurance to millions of hard-working Americans.”

He was accompanied during his speech by several people who are expected to benefit from his health care proposal. He gestured to them, saying, “I want Republicans to know – these are the Americans you’d hurt if you were allowed to dismantle this law.”

Republicans said it is Obama’s fault the shutdown continues, as the president has refused to negotiate over the plan.

“The White House position is unsustainably hypocritical," said Michael Steel, a spokesman for House Speaker John Boehner.