04.26.2019 0

Government shutdowns don’t cause recessions. The Trump economy grew at 3.2 percent in the first quarter.

By Robert Romano

The U.S. economy grew at an inflation-adjusted 3.2 percent annualized in the first quarter of 2019, putting it on track to get to 3 percent for the year for the first time since 2005, according to data compiled by the Bureau of Economic Analysis.

The startling data undoubtedly caught official Washington, D.C. by surprise, who had been gleefully predicting that the partial government shutdown earlier this year would cause a slowdown particularly to government contractors who, unlike federal employees, were not awarded backpay after the shutdown ended.

Unfortunately for the establishment punditry, whatever effect slower spending might have had was more than offset by the strength of the Trump economy.

The Congressional Budget Office had estimated that the partial shutdown cost the U.S. economy $3 billion of output in the fourth quarter of 2018, and $8 billion of output in the first quarter of 2019, respectively.

But it did not matter.

Most of that came out of $245 million of government contracts a day not paid out during the shutdown. Again, federal employees who were furloughed during that time have already been awarded back pay, including for the last week of 2018, the output of which has been moved into the first quarter of 2019.

Because government spending is factored into the GDP, and the reduction was actually $8.1 billion, amounts to approximately 0.16 percent according to the Bureau, or 0.17 percent annualized that came out of the first quarter GDP’s growth rate.

So, instead of 3.2 percent (really, 3.17 percent rounded up), the economy might have grown at 3.34 percent in the first quarter without the government shutdown.

But that does not matter, either. It will be made up for in the second quarter and beyond as government contractor spending “grows” by $8 billion back to its normal level. As the CBO report noted, “In subsequent quarters, GDP will be temporarily higher than it would have been in the absence of a shutdown.”

Meaning, not only will it be a wash, but it could give the second quarter some breathing room. Now, to get to 3 percent for 2019 — the economy has not averaged more than 3 percent annual growth since 2005, and not above 4 percent since 2000 — assuming today’s number holds, the real GDP needs to grow at a little more than 2.99 percent each of the remaining quarters.  Which should be a bit easier with the additional 0.17 percent boost supposedly coming in the second quarter.

All of which speaks to the continued vitality of the Trump economy as President Donald Trump’s third year in office begins. Growth is strong, unemployment is low, inflation is stable. The tax cuts, deregulation and better trade deals are all working. After a decade of stagnation under former President Barack Obama and former Vice President Joe Biden, now the numbers are all headed in the right direction.

President Trump could not ask for a better recipe headed into 2020.

Make no mistake, if the economy was not performing well, Trump would most certainly get the political blame. That means when it does well, the President deserves the same measure of credit. But knowing the way official Washington, D.C. works, nobody should be holding their breath for plaudits.

Correction: The article previously misreported the GDP impact of the partial shutdown at 0.6 percent in the first quarter; the correct number was 0.16 percent or 0.17 percent annualized out of the first quarter.

Robert Romano is the Vice President of Public Policy at Americans for Limited Government.

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