Noah Smith: The economy can’t shrug off the shutdown forever

Noah Smith: The economy can’t shrug off the shutdown forever

For months now, commentators and economists have been warily eyeing the U.S. economy and asking what will cause the next recession. Risky corporate debt seemed to be building up in the system, but with profits robust and interest rates low, servicing the debt didn’t seem to be a problem. The Federal Reserve raised rates by a modest amount, but signaled that it didn’t have much appetite for future increases. President Donald Trump’s trade war didn’t seem to be having much effect yet. Then came the government shutdown. In an attempt to force Congress to build a southern border wall, Trump has caused about 800,000 government workers to be furloughed, or in some cases work without pay. On one hand, that’s not a huge number of workers — only about 0.5 percent of the labor force. And those workers are slated to receive back pay once the shutdown ends. But while they’re not earning money, it’s much harder for them to make payments on their credit-card debt, mortgages, cars, not to mention rent and grocery bills. And in the meantime, many government services are simply not being provided. The Transportation Security Administration is struggling to perform security screenings for air travel, leading to long lines and congestion. The loss of those services will undoubtedly gum up the wheels of the American economy. In addition to those 800,000 workers, a much larger number of government contractors is going without pay. The shutdown is reducing payments to contractors by about $245 million […]

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