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Government Shutdown Causing Far Greater Damage To Economy Than Previously Estimated

MARY LOUISE KELLY, HOST:

Previous government shutdowns usually ended after a few days. This one has now gone on longer - a lot longer. It's now at record length. So trying to calculate its effect on the economy is more complicated, though even the Trump administration is now acknowledging the shutdown will eat into economic growth. NPR's Jim Zarroli reports.

JIM ZARROLI, BYLINE: White House economic adviser Kevin Hassett has sometimes downplayed the impact of the shutdown on the economy. But yesterday he seemed to have a different take. He said the impact would be twice as much as previous estimates. Here he was in an interview on Fox Business Network.

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KEVIN HASSETT: The government workers that aren't getting pay are feeling the pain, and it's going to really affect the economy as well.

ZARROLI: The White House says every week that the shutdown drags on, it will shave another 0.13 percent off of economic growth. That's pretty small, but it adds up over time. Some 800,000 federal workers are not being paid now, and that doesn't include the 4 million contract workers, many of whom are also going without pay. That's already beginning to affect the spending behavior of federal employees. There are people like Sophia Bogat, who works at NASA on a Mars exploration project.

SOPHIA BOGAT: I mean, it's a dream job. I would just love to be able to do it right now.

ZARROLI: Bogat works on contract, which means she's mostly not getting paid. And unlike civil servants, she won't be made whole later. So she's given up dinners out and exercise classes and even sold her car to raise cash.

BOGAT: It's changed the way that I grocery shop. I've been subsisting essentially on rice, beans and vegetables. You know, I stopped buying pretty much any meat just because it's expensive.

ZARROLI: And that kind of pullback on spending can lead to slower growth as a whole, especially in places with a lot of federal employees. Joseph Brusuelas, chief economist at RSM, says there are cities, such as Ogden, Utah, site of a large IRS facility.

JOSEPH BRUSUELAS: These are highly-paid professionals with educations who aren't receiving income who are going to see at least - at this point, at least two paychecks missed by these individuals. That's an entire month of pay.

ZARROLI: And that's only the initial impact of the shutdown. Macroeconomic Advisers founder Joel Prakken says sooner or later, the suspension of so many government services begins to affect the broader economy. Federal workers process housing loans, pay tax refunds and approve food labels. The fact that they're not doing that now keeps businesses from operating.

JOEL PRAKKEN: And then what about disruptions because public transportation is delayed, courts are closed, inspections are not being done, all of that?

ZARROLI: This shutdown comes at a time when the U.S. economy has been doing pretty well. Unemployment has been low. But Joseph Brusuelas says the longer the shutdown lasts, the more likely it is that the job market will suffer. In fact, more jobs could be lost than created for the first time since 2010. And he notes this comes at a time of ongoing trade tensions between the U.S. and China as well as an economic slowdown in Europe and Asia.

BRUSUELAS: You got what I would refer to as a growing uncertainty tax, which will show up in less hiring and less business investment.

ZARROLI: Once the slowdown ends, Congress is expected to pay federal employees back for the time they've lost, but the huge disruption to the economy could leave other problems in its wake. Previous shutdowns have hurt business confidence and left people a lot less certain that the government can address the problems it faces. And that could leave a residue of uncertainty that's a lot harder to eliminate. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.


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