CBO estimates shutdown cost $11 billion, $3 billion won’t be recovered

From today’s ABC News Online:

The nonpartisan Congressional Budget Office estimates that the longest-running government shutdown in U.S. history came at a price. It cost the economy $11 billion, with $3 billion that will never be recovered, according to a report released Monday.

For the fourth quarter of 2018, the CBO estimated real gross domestic product was reduced by $3 billion compared to what it would have been. The level of real GDP for the first quarter of 2019 is estimated to be $8 billion lower, due to a combination of the partial government shutdown delaying approximately $18 billion in federal spending, suspending services for federal workers and a reduction in demand lowering output in the private sector.

“Risks to the economy were becoming increasingly significant as the shutdown continued,” the report read. “Although their precise effects on economic output are uncertain, the negative effects of such factors would have become increasingly important if the partial shutdown had extended beyond five weeks.”

While CBO anticipates a majority of the lost real GDP will be recovered, about $3 billion will not be. That’s about 0.02 percent of the projected annual GDP in 2019, according to the report.

“Among those who experienced the largest and most direct negative effects are federal workers who faced delayed compensation and private-sector entities that lost business,” the report said. “Some of those private-sector entities will never recoup that lost income.”

Read the complete article here.

With 8 Years of Gains, Unemployment Is Lowest It Has Been Since 1969

From today’s New York Times:

The unemployment rate fell to a nearly five-decade low in September, punctuating a remarkable rebound in the ten years after the collapse of Lehman Brothers set off a global financial crisis.

The 134,000 jobs that employers added in September reflected the slowest pace of growth in a year, and the growth in wages cooled slightly from August.

But there is little evidence that those mildly disappointing figures suggest a broader slowdown. The report on Friday extended the current run of monthly job growth to eight straight years, double the previous record.

By nearly any measure, today’s labor market is the strongest since the dot-com boom of the late 1990s and early 2000s. Job growth has repeatedly defied economists’ predictions of a slowdown. African-Americans, Latinos and members of other groups that often face discrimination are experiencing some of their lowest rates of joblessness on record.

“I view this as the strongest labor market in a generation,” said Andrew Chamberlain, chief economist at the career site Glassdoor. “These really are the good times.”

The current economic expansion is already one of the longest on record, and there is no sign that it is losing steam. Economic output last quarter increased at its fastest pace in four years, and the current quarter looks strong as well. Yields on United States government bonds have risen sharply in recent days, an indication that investors expect faster growth, and more inflation, in coming years.

For months, the one knock on the economy has been that strong hiring has not yet translated into robust pay gains for many workers. There are signs that that could finally be changing.

The 2.8 percent increase in average hourly earnings last month compared with a year earlier was down slightly from the 2.9 rate in August. But earnings growth has drifted upward in recent months, and other measures show stronger growth.

Workers at the bottom of the earnings ladder are seeing particularly strong growth: Amazon announced this week that it would raise the minimum wage for all of its employees in the United States to at least $15 an hour.

Read the complete article here.

U.S. economy contracts slightly

The U.S. economy contracted by a fraction of a percent in the final quarter of last year, catching investors off guard. According to a Commerce Department report released yesterday GDP contracted by .01 percent at the end of 2012, the weakest economic report since the second quarter of 2009. The report cites declining military spending and exports as some of the many reasons for decline. In addition, the political impasse in Washington over the “fiscal cliff” was blamed for frustrating investment.

Some information in the report was cited to dispel concerns about a return to recession. For example, investment in residential housing jumped 15.3 percent, and equipment and software purchases by businesses rose 12.4 percent. However, the 22.2 percent drop in military spending is the single largest drop in 40 years represents a significant amount of federal spending, and that decline alone helped push the last quarter into negative growth. Along with a decline in the consumer confidence index this month  news of negative growth sent stocks down this morning, though the market rallied later.

With unemployment remaining at 7.8 percent and forecasts for growth reigning back estimates for the first quarter of 2013, Congress and President Obama will have to achieve a more fair process that leads to more stable budgeting. The so-called “fiscal cliff” cannot be resolved unless Republicans compromise on a sensible tax plan and Democrats stand their ground on further austerity cuts. Although a balance has to be struck between taxes and spending, the report clearly shows that declines in government spending directly contribute to slow growth. This is because spending cuts are more likely than not to undermine effective demand further and frustrate solid growth.