10/14/2013 11:45 am ET Updated Oct 14, 2013

U.S. Shutdown Could Cut Economic Growth By A FIFTH, Economist Says


In case it wasn’t already painfully obvious, here’s some more evidence the government shutdown is probably hurting the economy.

Jan Hatzius, Goldman Sachs’ chief economist, wrote in a note Friday that the shutdown could shave about 0.5 percent off the next quarter’s GDP growth. Hatzius’ 0.5 prediction may seem small, but if it proves true, it could have a big impact. Initially, Hatzius predicted the economy would grow by 2.5 percent, so cutting the forecast by 0.5 percent marks a 20 percent drop.

Congressional Republicans refused to pass a resolution to fund the government earlier this month unless it included provisions to defund portions of President Obama's health care reform law. The shutdown entered its third week Monday as 350,000 federal workers are still off the job, some national parks remain closed and some government functions -- like environmental inspections -- are on hold.

All of that, plus spooked consumers and investors, means the shutdown is costing the economy about $160 million per day, according to data released last week by global market research firm IHS.

But while the shutdown could certainly inflict some economic damage -- especially the longer it continues -- the impact is likely small compared to what would happen if lawmakers don’t raise the debt ceiling in the coming weeks, economists told the Washington Post earlier this month. Congressional Republicans have threatened to use the debt ceiling as leverage to delay Obamacare.

If Congress doesn’t raise the nation’s borrowing limit by October 17, the government won’t have enough money to pay its bills and won’t be able to borrow more, according to Treasury Secretary Jack Lew. If the standoff continues until late October or early November, when payments to many investors are due, the nation will be in danger of defaulting on its obligations and Lew will be faced with a series of unprecedented and unpalatable options to pay the bills.