WASHINGTON
(Reuters) - A partial shutdown of the U.S. government could slash job growth by
as much as 500,000 in January and lift the unemployment rate above 4.0 percent
unless the impasse in Washington is resolved before next Friday, economists
warned.
Some 800,000
government workers missed their first paycheck on Friday following the partial
shutdown which started on Dec. 22 as President Donald Trump demanded that the
U.S. Congress give him $5.7 billion this year to help build a wall on the
country’s border with Mexico.
The Labor
Department, which has not been affected by the shutdown, surveys employers and
households for its closely watched employment report, which includes nonfarm
payrolls and the unemployment rate, during the week that includes the 12th of
the month.
For this
month, the pay period for most federal employees that includes the week of the
12th runs from Jan. 6 to Jan. 19. About 380,000 workers have been furloughed,
while the rest are working without pay.
Unless the
government reopens next week, furloughed workers will probably be counted as
unemployed, as they would not have received a salary during the pay period
survey.
“So, if the government remains closed past January 19, then furloughed
federal workers will not receive pay during the survey week, meaning that we’d
very likely get a big drop in the headline payrolls report, something on the
order of perhaps 500,000 to 600,000,” said Omair Sharif, senior U.S. economist
at Societe Generale in New York.
That could result in the first monthly decline in employment since
September 2010 and snap a string of 99 consecutive months of jobs gains.
But if Congress decides to pay these workers retroactively as was the
case following the October 2013 government shut down, they would be considered
employed.
“You can look at the private sector payroll figure to bypass this
distortion, but it’ll create some uncertainty and prevent us from getting a
clean read on the labor market,” said Sharif.
The economy created 312,000 jobs in December, the most in 10 months.
Trump likes to boast about the strong labor market as one of his crown
achievements. The shutdown, which on Friday tied the record for the longest in
the nation’s history, could also drive up the unemployment rate in January.
HIGHER
UNEMPLOYMENT RATE
The household survey from which the jobless rate is derived would
likely consider the furloughed workers as unemployed.
“These workers account for about 0.2 percent of the current labor
force, so all else equal, the increase in unemployment associated with the
government shutdown could lead to a 0.2 percentage point increase in the
unemployment rate in January,” said Daniel Silver, an economist at JPMorgan in
New York.
The unemployment rate rose two-tenths of a percentage point to 3.9
percent in December as some jobless Americans piled into the labor market
confident of their employment prospects.
While these impacts on the labor market are likely to be temporary,
they could make it difficult for policymakers to get a clear read of the health
of the economy for monetary policy.
Economists also worry that a prolonged government shutdown could hurt
both business and consumer confidence, and undercut business and household
spending.
Richmond
Federal Reserve President Thomas Barkin said on Thursday that the shutdown,
which has delayed the release of Commerce Department data, including November
trade figures, could affect the amount of economic data available to the
Federal Reserve, the U.S. central bank.
JPMorgan
estimates the shutdown is cutting 0.1-0.2 percentage point every week from
quarterly economic growth. It said the impact could be even larger if the
shutdown led to a significant shift in sentiment.
“The 2013
shutdown did have noticeable negative effects on some measures of consumer and
business sentiment, but these effects proved short-lived against a backdrop of
otherwise strong economic data and buoyant equity markets,” said Silver.
“It is
possible that an extended shutdown right now could interact with market
declines and already weakening economic data to produce a larger drag on
sentiment and the overall economy.”
Source: Reuters