|Budget showdown batters US economy
The US economy and consumer confidence have taken significant hits from a two week federal government shutdown, economists say.
Even as stock markets rebounded Wednesday, analysts said there was clear evidence of damage, and warned that a revival of political battles in January could inflict more pain.
The credit rating agencies Moody's and Standard & Poor's estimated that the partial closure of the government from October 1 would slice 0.5-0.6 percentage points from annualized growth in the fourth quarter, AFP reports.
S&P said the shutdown took US$24 billion from the economy, as hundreds of thousands of government workers stayed at home unsure of getting paid, government contracts were delayed and national parks that drive crucial tourist industries were closed.
Because of that, several economists cut their forecasts for fourth quarter growth to around 2 percent, barely enough to generate the jobs needed to pull down unemployment.
Many said they expected the Federal Reserve would see the need to keep its stimulus in place through the end of the year, if not longer, to mitigate the drag from the crisis.
“The bottom line is the government shutdown has hurt the US economy,'' S&P said.
Jim O'Sullivan of High Frequency Economics, added: “Even without an extreme outcome being realized, some damage has been done.''
The shutdown exacerbated what already appeared to be a weak spot in the economy, with higher interest rates from the Fed's expected tightening of its stimulus beginning to slow activity in sectors such as real estate.
The Fed saw vulnerability when in September it decided not to begin reducing its US$85 billion a month in bond purchases, though it also cited the dangers of the looming shutdown and debt ceiling fight.
But just how the economy performed last month remains unclear, because publication of key government data, especially the job creation and unemployment report for September, were canceled.
The Fed's Beige Book survey of regional economic activity, released Wednesday, showed slowing in some areas since the September 4 report.
In addition, it noted “an increase in uncertainty'' due mainly to the shutdown and fears over the frozen debt ceiling.
Several confidence indicators from private sector analysts have also shown pessimism. The University of Michigan consumer sentiment gauge fell to a nine-month low last week.
Most analysts expect a rebound in consumer activity as the country heads into the Thanksgiving-Christmas holiday season.
But the details of the deal struck in Congress will continue to weigh over markets and the economy. The deal only budgets the government through January 15, and caps the debt again on February 7, opening the prospect for renewed brinksmanship over fiscal issues in Congress.
That could make consumers and businesses more cautious about investment, spending and hiring, holding back growth.