Could Trump’s shutdown push US into recession?

by Chris Becker

The record US government (partial) shutdown moved into its 25th day overnight, with both sides digging in as Senate Leader McConnell blocked another continuation vote in the Senate to re-open the government. The impact is being felt at a micro level by the near 1 million US government employees who haven’t been paid in nearly a month, but there are macro rumblings that as each day turns into another week, the effects will be felt dearly at the macro level.

First at CNBC, where the White House has doubled its estimate of shutdown on GDP:

…the original estimate that the partial shutdown would subtract 0.1% from growth every two weeks has now been doubled to a 0.1% subtraction every week, citing an unnamed official.

While the administration had initially counted just the impact from the 800,000 federal workers not receiving their paychecks. But they now believe the impact doubles, due to greater losses from private contractors also out of work and other government spending and functions that won’t occur.

Up to 0.5% has been considered if the shutdown last’s til the end of January, pushing the usually subdued first quarter GDP print into recession territory. Of course, there’s no estimate available particularly on retail sales data which is due today, since the part of the government that collects the figures is in shutdown.


Meanwhile at the Vampire Squid HQ,  Goldman Sachs doesn’t see a recession just yet, but at least a “pretty sharp” slowdown even though they think the Fed will raise rates two more times this calendar year, according to CNBC:

“At the end of last year, there was a particularly sharp downgrade in expectations for the U.S. and while there has been a big tightening of policy and financial conditions in the U.S. … We don’t see a recession, but we do see a pretty sharp slowdown,” Goldman’s Peter Oppenheimer said, adding that markets had “got too far into pricing a deeper downturn than we expect.”

“Although we do see downside risks to that (forecast) because the growth environment in the U.S. is slowing and financial conditions have tightened and the global growth environment is more subdued in 2019 than it was in 2018.

The Fed has signaled a pause in the rate-hiking cycle in the near-term and I think that’s in response to the sharp tightening in financial conditions that we saw towards the end of last year. Also some of the inflation numbers have been a little bit softer and so the Fed has indicated more patience in the normalization process.

“But at the same time we don’t think the Fed hiking cycle is over and we do think that markets have overshot somewhat because markets are now pricing cuts in the U.S. rather than hikes.”

Markets are definitely pricing in good times ahead with the S&P500 share market on a tear since bottoming as the government shutdown:

If the shutdown goes on for another week or even a month, particularly as the US corporate reporting season gives some sort of insight into 4Q 2018 retail sales and consumption, I’m pretty sure the Fed will ease off on the next interest rate hike.

Luckily there’s no other global catalysts out there to upset the US economy, like a trade war with China, a hot war in Syria or the breakdown of the European grand experiment.


  1. Ronin8317MEMBER

    About 46k US government employees is ordered by Trump to go back to work for no pay (mostly to process out tax refunds). This can go on for a lot longer if the government employees keeps working for nothing.

      • *You’re.
        sorry, I forgot to use the 3D chess GIF instead, another week or so and the cost to shutdown the government will be the same as paying for “the wall”. (source: S&P, Bureau of Economic Analysis and the White House)

      • Its not going to cause a recession but keep posting and wishing. Ill keep laughing at you. …. good to see your on the spell check…..LOL……

    • Its not hard to understand that Government is the first to spend in the economy and a prolonged shut down is just destroying demand at the end of the day. But hay, its not like trumpo had a majority pre election cycle and only went rabid after the democrats took the house, so now no one can talk about important stuff as he throws his toys out of the play pen ….

      • “good to see your on the spell check”…………you’re one to talk, refer to grammar check old boy

  2. Trump will probably win the shut down – possibly due to the cusp of a technical recession.

    This ancient joke provides the reason.
    You don’t need brains to be a Boss.

    When the body was first created, all the parts wanted to be Boss. The brain said, “I should be Boss because I control all of the body’s responses and functions.”

    The feet said, “We should be Boss since we carry the brain about and get him to where he wants to go.”

    The hands said, “We should be the Boss because we do all the work and earn all the money.”

    Finally, the asshole spoke up. All the parts laughed at the idea of the asshole being the Boss. So, the asshole went on strike, blocked itself up and refused to work.

    Within a short time, the eyes became crossed, the hands clenched, the feet twitched, the heart and lungs began to panic, and the brain fevered. Eventually, they all decided that the asshole should be the Boss, so the motion was passed. All the other parts did all the work while the Boss just sat and passed out the shit!

    Moral Of The Story: You don’t need a brain to be a Boss—-any asshole will do.

    • love it! Will share that one around.
      On another note, whether you agree or not, it was one of Trump’s signature policies and he won an election with it so democrats need to pull their head in. In my view, they are helping his case.

      He says: See, the swamp things wont let me make America great so give me another term to deal with swamp once and for all…. this shutdown will be key to his success in next election. Stormy Daniels can sue and counter sue, Trumpy aint goin anywhere

  3. Lot to be said for small government.

    Once Trump has won the border security issue (67% of American support improved border security) anyone in a critical govt function can return back to work & that’s about 100,000.

    The rest? mostly democrat affirmative action & Obama make work non jobs created during the two Obama recessions can stay sacked.
    A highly politicised (80% plus hard democrat) non productive subversive swill of ‘resistance’, go slow & agitation, the epi-centre & power base of the cancerous democrat mother cyst in Washington & long overdue to be lanced & cleaned out from top to bottom.

    America is not going into a recession any time soon.
    Business & consumer confidence is booming.
    The Dow is up 35% from end of obama (Election Day 17,888 Nov 6th 2016 – today 24,171) – even with Apple’s lack of innovation / slowing sales dragging it back a bit.

    And with US unemployment at 3.7% (record low) and even black unemployment at 5.7% (record low)…

    It’s a perfect time to shed the US government worker democrat parasitic burden – ethical & timely – as Trump has created plenty of non Govt work opportunity for them in alternative employment.