Talk grows of US government shutdown causing recession

The current US government shutdown has already entered its 26th day, nearly a week longer than the longest in government history.

And there is no sign that the dysfunction will end, with President Donald Trump refusing to sign legislation to fund the government unless it includes money for a wall on the southern border. Democratic House Speaker Nancy Pelosi said she would not support legislation that provides any cash for the wall, at least nothing in excess of $1.

The partial shuttering, which affects about 800,000 government employees of agencies that have not been funded, also affects around 4 million government contractors, according to some estimates, who will not necessarily receive any kind of back pay.

But the employees who are hit don’t tell the whole story about how this will impact the US economy.

For one thing, the shutdown could weigh on business investment, as Bloomberg writes on Wednesday:

“Companies might delay investment due to regulatory disruptions — already there are ominous signs. Thanks to the lack of government workers to grant regulatory approval, new products from aircraft to beer to trucks can’t be released. That uncertainty will almost certainly give companies pause about investing. If anxieties about the decline in demand due to the shutdown make companies even more reluctant to invest, the result could be that many businesses stampede for the exits.”

This could have a ripple effect. And, according to some economists, it could be just this kind of a shock that helps push the economy into a recession.

“There’s some kind of shock. There is something that goes wrong. Maybe it’s bad policy like shutting the government down for a long period of time,” Betsey Stevenson, an economic advisor in the Obama administration, said on Politico’s Money podcast.

JPMorgan CEO Jamie Dimon also cited concerns about the costs of the shutdown in a call with reporters this week.

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

“Consumers are in good shape, they’re spending money, they’re saving money, household formation is going up, wages are going up,” Dimon said. “Eventually there will be offsets that may push the economy into recession, we don’t know when that’s going to be.”

Even if the Trump administration strikes a deal to end the tariff battle with China, another potential self-inflicted wound now needs to be resolved. But, as of now, the White House has not signaled an exit ramp that would be acceptable to Democratic lawmakers who appear perfectly happy to let Trump own a shutdown for which most Americans blame the president, according to recent polls.