How the battle over Trump’s border wall is costing the US economy

US President Donald Trump wants a border wall. Congressional Democrats do not. And the resulting political deadlock that’s led to the longest US government shutdown in history is dragging on the economy and negatively impacting hundreds of thousands of American livelihoods in the process.

If the partial shutdown that began a month ago persists through the end of January, Moody’s Analytics estimates that it could take an $8.7bn bite out of the US economy, shaving 0.2 percentage points off first- quarter annualised growth. 

Although that’s not enough to derail the economy, Moody’s cautions that the fallout will be more pronounced if the shutdown continues into February and “if it exacerbates recent softness in business and consumer confidence or triggers an adverse reaction by financial markets.” 

That warning illustrates how direct disruptions caused by the shutdown can ripple through the economy to indirectly ensnare more individuals and businesses.

The pain could even reverberate beyond the United States. In its latest update to its World Economic Outlook, the IMF listed a “protracted” US government shutdown as a “downside risk to global investment and growth”. 

Federal workers and contractors

Approximately 800,000 federal workers haven’t been paid since the shutdown began a month ago. That’s a huge shock to an individual or family budget, especially for those living paycheque to paycheque.  

The shutdown is also affecting federal contract workers and grantees, which New York University Professor Paul Light estimates number 4.1 million.

Last week, the President’s Council of Economic Advisors, nearly doubled its original estimate of how much the shutdown was costing the economy, saying it would cut quarterly economic growth by 0.13 percentage points for every week it went on.

The new figure took into account federal contractors who aren’t being paid, as well as furloughed workers. 

Federal workers who are furloughed or working without pay will be reimbursed once the shutdown ends.  But as Moody’s notes, many low-wage private contractors working in food services or as security guards could “face a permanent loss of income”. 

The hardship and uncertainty is already affecting businesses in areas with high concentrations of these workers, as people squeezed by the shutdown forgo spending on discretionary purchases, including dining out. 

Miloud Benzerga is the owner of Timgad cafe, a coffee shop located on the ground floor of a federal building in Washington, DC, a few blocks from the White House. He told Al Jazeera he’s lost 70 percent of his business since the shutdown began. “You can lose everything,” he said.

City officials are also concerned. “The longer this lasts, the greater the likelihood that we will see some of the smaller restaurants closing and other small businesses,” Washington, DC federal council chair Phil Mendleson told Al Jazeera. 

Business and consumer confidence

The shutdown is combining with other recent concerns over slowing global growth, the US-China trade war, stock market volatility and questions over the direction of interest rates, to dent consumer confidence – a troubling sign because consumer spending is the engine of the US economy.  

The latest reading from the University of Michigan showed consumer sentiment sank to its lowest level since Trump was elected. 

Belt tightening by consumers isn’t the only challenge facing businesses. 

The halt to routine government operations is forcing firms throughout the country to press pause on their plans as the shutdown disrupts federal inspections and permitting, as well as approvals for IPOs and small business loans.