JP Morgan lowered their Q1 annualized real GDP growth projection from 2.25% to 2.0% due to the ongoing partial government shutdown.
“The primary reason for the downward revision is the economic impact of the ongoing shutdown of the federal government. As we discussed in previous research (link here) each week the government is shut down subtracts 0.1-0.2% from quarterly GDP growth,” reads the JPM note.
Since the output of the government sector is not priced and sold in the market, it has to be inferred by the number of hours worked by government employees. While the shutdown adversely affected such hours in late 18Q4, they are already down much more in 19Q1. Presuming the shutdown is resolved before the end of this quarter then that would imply a lift to Q2 GDP growth (though cumulative output over the first two quarters will be lower than otherwise). Nonetheless, we are leaving our Q2 GDP growth forecast unrevised, also at 2.0%. Thus far it is hard to convincingly detect a macro effect on private sector activity, though risks of spillover to the private sector increase the longer the shutdown lasts. -JP Morgan
On Friday, meanwhile, Fox Business Network host Charles Gasparino said that the White House’s internal data shows that there is an imminent threat to the economy over the shutdown.
“If this impasse doesn’t end soon, there will be a real economic impact, that GDP will likely slow. If this thing doesn’t end soon, there will be a real economic impact – generally if the GDP goes down over Donald Trump’s wall.
“What people are telling me is that next week, we could very well see Donald Trump hitting the button on the emergency declaration and letting the courts decide.”
“All this stuff changes. The president could have a huge change of heart,” Gasparino added.
“As of right now I’m telling you two things; number one, their internal data is not good – it shows there is an imminent impact on the economy if this thing does not end very soon… Number two… he’s likely to hit the button on that emergency declaration next week.”