A month into US govt shutdown, the economy blinks first

Americans have less confidence in the economy's strength in 2019 as survey numbers drop

WASHINGTON: After four weeks, the partial shutdown of the US government has begun to rattle the world's largest economy, particularly hitting consumer sentiment, a mainstay of growth.

A closely-watched monthly consumer survey on Friday touched its lowest level since President Donald Trump's election in 2016, suffering its biggest one-month drop in more than six years, according to University of Michigan economists.

Americans have less confidence in the economy's strength in 2019, while 800,000 government workers are furloughed or work without pay as Trump battles on Democratic lawmakers over funding for a wall on the Mexican border.

The shutdown, which began December 22, directly affects only 0.5% of the labour force, but indirectly, it is beginning to hit morale for more than half of US consumers, according to the report.



When government operations resume, federal workers should ordinarily get back pay. But this may not be true for contractors, who could have to eat the loss.

As the work stoppage continues, economists have progressively raised their estimates for its cost to GDP growth.

White House economists doubled their estimate early this week, determining that after a month, the shutdown would shave a half percentage point off the first quarter.

The battle over wall funding coincides with other clouds on the horizon, as a recent Fed survey showed.



The US-China trade war, sharp volatility on stock markets that left the major Wall Street indices in correction for a month, and fumbled public statements from the central bank also made investors shudder.

With a slowing global economy and trade uncertainties, the Fed for now expects 2.3% growth in 2019, down sharply from the growth of about 3% expected for 2018.

Forecasts for the first quarter of this year are not yet available.

The fundamentals of the economy remain sound, analysts say, even if much economic data - including home and retail sales or the trade deficit - is not being produced during the shutdown.