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Officially a month long today, the (partial) US government shutdown that began on Dec. 22 is now the longest in US history, surpassing both the 1995-96 shutdown (21 days) and 2013 shutdown (16 days), and with both Trump and the Democrats digging in, it shows no signs of ending any time soon. Indeed, Trump's latest proposal over the weekend to offer extended protections for "Dreamers" in exchange for border wall funding was rejected by Democratic leaders as a non-starter, suggesting both sides remain far apart.
And with some analysts speculating whether instead of days or weeks, the current shutdown may last 2, 3 or even more months, pundits are starting to be increasingly concerned about its direct impact to GDP. According to BofA economists the impact to US growth from the partial government shutdown will be -0.1% for every two weeks the shutdown drags on, and as a result they have trimmed their 4Q GDP by 0.1 (to 2.8%), while their Q1 estimate of 2.2% will likely be downgraded similar to what JPMorgan did last week.
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In addition to the direct drag, indirect impacts are likely: furloughed workers may slow consumption and businesses could delay capex spending due to uncertainty. Companies who are suppliers to government contractors are also impacted, and SBA lending to small businesses/entrepreneurs has also been halted. Additionally, the delayed release and/or distortion of certain economic data creates more uncertainty for markets.
Still, according to what high frequency economic data continues to be reported, there has yet to be a major hit to the economy, suggesting the stalemate will continue until the economic pain - for either side - becomes unbearable.
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