Shutdown Will Continue To Damage Economy Through The Holiday Season, Economists Predict


Though Congress narrowly averted a catastrophic default and reopened the government, economists are warning that Republicans’ crisis-to-crisis brinkmanship over the past few years is causing lasting damage to the economy.

The shutdown deal, which funds the government through January 15 and postpones the debt ceiling until February 7, all but mandates another down-to-the-wire budget battle, Moody’s Analytics economist Mark Zandi told CBS’s Face the Nation host Bob Schieffer on Sunday.

Zandi said that while some of the $24 billion of lost economic activity during the shutdown will be recovered, the inability of businesses and consumers to plan for more than a couple months at a time is “corrosive” to the economy.

“Pervading the entire economy is this uncertainty, which I think the effects of that are corrosive, have been accumulating over the past few years,” Zandi said. “And obviously given the nature of the deal is we’re going to take this into next year, will continue.”

The effects of the shutdown and the continuing uncertainty will extend through the holiday season, traditionally a period of robust spending. Many federal workers and contractors say they will hold back on Christmas shopping if Congress seems to be heading toward another impasse in January. Another Moody’s analyst, Bradley Turner, told the Baltimore Sun, “To move the economy forward, we need a strong consumer. If a consumer can’t rely on his or her job…they aren’t going to spend. It’s going to be a pretty weak holiday season.”

“I had expected the economy to pick up pace by the end of the year going into the next but now I think that’s very unlikely,” Zandi told Schieffer. “I think we’re stuck in this very slow growth, lackluster kind of environment.”

Sequestration, which will be re-negotiated in the budget talks over the next couple months, has also had lasting damage on the economic recovery. Mass furloughs that kicked in earlier this year have slowed consumer spending, particularly on home sales and durable goods. Still more painful sequestration cuts are set to kick in on January 15 if lawmakers do not cancel them.