Shutdown squeezes American economy

Keeping 800,000 federal workers at home is costing some $300 million a day in lost productivity, according to the consulting firm IHS Global Insight.

If the furloughs continue for two weeks, the shutdown could shave 0.3 percentage points from fourth-quarter growth, according to Macroeconomic Advisers.

{mosads}Businesses, meanwhile, are at risk of losing market access as the government pares back support for exports.

Overall, economists say the impact of the shutdown on America’s $17 trillion economy would be modest. The shutdown won’t “show up in data to any significant degree” unless it lasts for a few weeks, according to Mark Zandi, the chief economist with Moody’s Analytics.

But many warn that a prolonged government stoppage — and another down-to-the-wire fight over the debt ceiling — could do lasting damage to investor confidence in the United States.  

“The immediate, tangible effects of the shutdown on the overall economy may be modest at first, but they will accumulate over time,” said Bruce Josten, executive vice president for government affairs at the Chamber of Commerce. 

“The intangible effects, however, are worse and may arise from growing unease in the business community that the federal government cannot even execute its most basic responsibilities, let alone work together on other pressing issues for the country, such as immigration reform, entitlement reform, and comprehensive tax reform.”

President Obama announced Wednesday that he was shortening a trip to the fast-growing Asia market, nixing stops in Malaysia and the Philippines because the shutdown had made planning impossible. 

“This completely avoidable shutdown is setting back our ability to promote U.S. exports and advance U.S. leadership in the largest emerging region in the world,” said Caitlin Hayden, spokeswoman for the National Security Council.

Hayden said other economic events could be coming off the president’s schedule as well.

“We have no updates on the president’s travel to major international summits in Indonesia and Brunei. We will continue to evaluate those trips based on how events develop throughout the course of the week. For the sake of our national security and economic prosperity, we urge Congress to reopen the government.”

Business groups are concerned about the shutdown’s impact on the federal agencies that help promote and expedite foreign trade.

The federal export credit agency has furloughed all but 17 of its 409 employees.

“If this [shutdown] drags out, it will jeopardize” aircraft sales and power plant construction contracts that rely on federal financing, said William Reinsch, president of the National Foreign Trade Council.

“And even if it doesn’t drag out, it becomes a talking point for the competition. The foreigners will go ahead and say, ‘The Americans are unreliable, and you can’t count on financing; you can’t count on an export license,’” he said. “The longer the shutdown lasts, the more likely it is to have an impact.”

Another casualty of the shutdown: America’s federal sales team.

“The absence of trade missions will hurt, not having our commerce people flying around the world bringing executives with them, doing marketing missions,” Reinsch said.

The Office of the U.S. Trade Representative (USTR) is among the agencies operating with a bare-bones staff. 

The shutdown comes at a particularly delicate time for trade negotiators, who are working to conclude negotiations with Pacific rim countries while getting talks with the European Union off the ground.

The administration insists the political stalemate won’t derail either effort.

“We have exempted USTR personnel whose presence is required to meet a handful of the most pressing international trade negotiation and enforcement obligations,” said spokeswoman Carol Guthrie. 

Trade Representative Michael Froman and his acting deputy, Wendy Cutler, were traveling abroad when the shutdown began.

Guthrie said that “as of today, in hopes that the lapse will be brief,” the agency is planning on participating in this week’s Trans-Pacific Partnership negotiations in Bali, Indonesia, as well as next week’s round of Transatlantic Trade and Investment Partnership talks in Brussels. 

“In the event of a prolonged lapse in funding, plans may change,” she said.

The Pacific Rim talks, however, could be harmed if Obama ends up calling off his Asia trip. The Asia-Pacific Economic Cooperation Forum (APEC) in Bali will give the leaders of the 12 Trans-Pacific Partnership members a chance to iron out a basic accord.

Already, Reinsch said, canceling the Malaysia leg of the journey might carry a cost. He said the country’s politicians have deep concerns about the trade deal, and a visit by Obama would have been a “very smart and timely thing to do.”

“It’s a missed opportunity,” Reinsch said. “That’s the problem with all this.”

Vicki Needham contributed.