Can The Government Shutdown Really Drive GDP To Zero?

Not really, at least not during this market quarter or even the next.

According to the Bureau of Economic Analysis (BEA), the government would have to be shutdown for at least the first six months of 2019 to force the gross domestic product (GDP) down to zero.

The current government shutdown last Saturday entered its fourth week surpassing the longest government shutdown which occurred in 1995/1996.  It is often referred to as the Newt Gingrich government shutdown because Gingrich as the Speaker of the House at that time led Republicans in establishing the principle of tough bipartisan negotiating. He says though it was painful it accomplished a number of things such as “welfare reform, the largest capital gains tax cut in history, 4 consecutive balanced budgets [only time this has occurred in our lifetime].”

Jamie Dimon, CEO of JPMorgan on a breaking news flash interview by CBNC on Tuesday morning suggested that the government shutdown could drive the GDP to zero.  However, he claims that it was suggested by ‘someone’ without giving credit by name of who that someone is.

“Someone estimated that if it goes on for the whole quarter, it can reduce growth to zero,” Dimon said in his fourth-quarter earnings call. “We just have to deal with that. It’s more of a political issuethan anything else.”

However, while he forecasted dire results of the shutdown, he said that the underlying statistics for the economy weren’t that bad and that his company JPMorgan “will be prepared for the eventual downturn.”

So it really doesn’t sound all that bad does it?

Furthermore, according to the BEA, 2018 third quarter GDP estimates were at 3.5%. The estimated rate of impact predicted by the Trump administration that the government shutdown will have on the GDP would be about 0.1%.  So, for the four weeks so far of the shutdown, it would be an impact bringing down the GDP to 3.1%.  According to the BEA the government would have to be shutdown for at least the first six months of 2019 to force the GDP down to zero.

Forbes reports that the Dow, S&P 500 and the Nasdaq all opened higher on Tuesday morning. 

According to Statista, the US GDP has been slowly rising since 2016 from approximately 1.5% to 3.5% at end of third quarter of 2018. In current dollar terms that’s an increase of $247.1 billion bringing the GDP to a level $20.66 trillion.

The estimated 800,000 Federal workers who have been furloughed make up less than 10% of the approximately 8,000,000 people who are on record as working out of 328.8 million people who live in the US.

No Comments

    Leave a reply