US government shutdown unlikely to cause immediate recession

WASHINGTON — Federal government shutdowns have become so common in recent years that forecasters have a good read on how another one would affect the U.S. economy. The answer is fairly simple: The longer a shutdown lasts, the more damage it is likely to inflict.

A brief shutdown would be unlikely to slow the economy significantly or push it into recession, economists on Wall Street and inside the Biden administration have concluded. That assessment is based in part on the evidence from prior episodes where Congress stopped funding many government operations.

But a prolonged shutdown could hurt growth and potentially President Joe Biden’s reelection prospects. It would join a series of other factors that are expected to weigh on the economy in the final months of this year, including high interest rates, the restart of federal student loan payments next month and a potentially lengthy United Automobile Workers strike.

A halt to federal government business would not just dent growth. It would further dampen the mood of consumers, whose confidence slumped in September for the second straight month amid rising gas prices.

Jared Bernstein, the chair of the White House Council of Economic Advisers, said in a statement Wednesday that the council’s internal estimates suggest potential losses of 0.1 to 0.2 percentage points of quarterly economic growth for every week a shutdown persists.

A long shutdown would also delay the release of important government data on the economy, like monthly reports on jobs and inflation, by forcing the closure of federal statistical agencies. That could effectively blind policymakers at the Federal Reserve to information they need to determine whether to raise interest rates again in their fight against inflation.

The economy appears healthy enough to absorb a modest temporary hit. The consensus forecast from top economists is for growth to approach 3%, on an annualized basis, this quarter. But economists expect growth to slow in the final months of the year, raising the risks of recession if a shutdown lasts several weeks.