“If a shutdown were to take place so far into the quarter, fourth-quarter GDP would not have time to bounce back, which could shake investors and consumers and, as a result, possibly snuff out any economic momentum,” the report says. “The timing could not be worse.”
Lawmakers have until the end of Friday to reach an agreement to avert the shutdown. The House is slated to vote Thursday on a short-term deal to keep the government open while a longer spending agreement is negotiated, but the risk of shutdown looms.
On Wednesday, The White House encouraged Congress to pass a two-week temporary spending measure that would keep the government funded through Dec. 22. But President Trump acknowledged that a shutdown “could happen.” Some congressional Democrats have demanded that any government spending agreement be paired with a deal to protect the young undocumented immigrants, known as dreamers, who were made subject to deportation by an executive order this September.
If Congress fails to reach a deal, a government shutdown could weaken consumer spending right before Christmas and dampen an otherwise strong run of growth for the U.S. economy.
The 16-day government shutdown in 2013 caused about 120,000 fewer private sector jobs to be created, according to the Council of Economic Advisers. S&P expects a similar loss in job creation if the federal government shuts down this December.
“Not the way you want to ring in the holiday season and the New Year,” S&P says.
Although the government would stop paying federal workers, S&P predicts a shutdown would increase the deficit because of the added cost required to stop and start federal programs. The last three government shutdowns — two during President Bill Clinton's administration and a third under President Barack Obama in 2013 — cost the federal government $4.25 billion, according to the Office of Management and Budget.
“With each day the shutdown drags on, federal workers may start to pull back on household spending at restaurants, childcare, or retail stores because of worries that they won't get paid anytime soon,” S&P says. “That's almost 1 million people who won't be getting regular paychecks.”