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    U.S. Government Shutdown Is Unlikely to Cause an Immediate Recession

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    White House and Wall Street estimates suggested the economy could withstand a brief shutdown, with risks mounting the longer it lasts.Federal government shutdowns have become so common in recent years that forecasters have a good read on how another one would affect the American economy. The answer is fairly simple: The longer a shutdown lasts, the more damage it is likely to inflict.A brief shutdown would be unlikely to slow the economy significantly or push it into recession, economists on Wall Street and inside the Biden administration have concluded. That assessment is based in part on the evidence from prior episodes where Congress stopped funding many government operations.But a prolonged shutdown could hurt growth and potentially President Biden’s re-election prospects. It would join a series of other factors that are expected to weigh on the economy in the final months of this year, including high interest rates, the restart of federal student loan payments next month and a potentially lengthy United Automobile Workers strike.A halt to federal government business would not just dent growth. It would further dampen the mood of consumers, whose confidence slumped in September for the second straight month amid rising gas prices. In the month that previous shutdowns began, the Conference Board’s measure of consumer confidence slid by an average of seven points, Goldman Sachs economists noted recently, although much of that decline reversed in the month after a reopening.Gregory Daco, the chief economist at EY-Parthenon, said a government shutdown would not be a “game changer in terms of the trajectory of the economy.” But, he added, “the fear is that, if it combines with other headwinds, it could become a significant drag on economic activity.”Jared Bernstein, the chairman of the White House Council of Economic Advisers, said in a statement on Wednesday that the council’s internal estimates suggest potential losses of 0.1 to 0.2 percentage points of quarterly economic growth for every week a shutdown persists.“Programmatic impacts from a shutdown would also cause unnecessary economic stress and losses that don’t always show up in G.D.P. — from delaying Small Business Administration loans to eliminating Head Start slots for thousands of children with working parents to jeopardizing nutrition assistance for nearly 7 million mothers and children,” Mr. Bernstein added. “It is irresponsible and reckless for a group of House Republicans to threaten a shutdown.”Goldman Sachs economists have estimated that a shutdown would reduce growth by about 0.2 percentage points for each week it lasts. That’s largely because most federal workers go unpaid during shutdowns, immediately pulling spending power out of the economy. But the Goldman researchers expect growth to increase by the same amount in the quarter after the shutdown as federal work rebounded and furloughed employees received back pay.That estimate tracks with previous work from economists at the Fed, on Wall Street and prior presidential administrations. Trump administration economists calculated that a monthlong shutdown in 2019 reduced growth by 0.13 percentage points per week.After that shutdown ended, the Congressional Budget Office estimated that real gross domestic product was reduced by 0.1 percent in the fourth quarter of 2018 and 0.2 percent in the first quarter of 2019. Although the office said most of the lost growth would be recovered, it estimated that annual G.D.P. in 2019 would be 0.02 percent lower than it would have been otherwise, amounting to a loss of roughly $3 billion. Because growth and confidence tend to snap back, previous shutdowns have left few permanent scars on the economy. Some economists worry that might not be the case today.Mr. Daco said federal workers might not spend as much as they would have absent a shutdown, and government contractors might not recoup all of their lost business.A long shutdown would also delay the release of important government data on the economy, like monthly reports on jobs and inflation, by forcing the closure of federal statistical agencies. That could prove to be a bigger risk for growth than in the past, by effectively blinding policymakers at the Federal Reserve to information they need to determine whether to raise interest rates again in their fight against inflation.The economy appears healthy enough to absorb a modest temporary hit. The consensus forecast from top economists is for growth to approach 3 percent, on an annualized basis, this quarter. But economists expect growth to slow in the final months of the year, raising the risks of recession if a shutdown lasts several weeks.Diane Swonk, the chief economist at KPMG, said she expected G.D.P. to rise about 4 percent in the third quarter, and then slow to roughly 1 percent in the fourth quarter. She said a two-week shutdown would have a limited impact, but one that lasted for a full quarter would be more problematic, potentially resulting in G.D.P. entering negative territory.“When you start nicking away even a tenth here or there, that’s pretty weak,” Ms. Swonk said.A shutdown could also further convey political dysfunction in Washington, which could rattle investors and push up yields on Treasury bonds, leading to higher borrowing costs, Ms. Swonk said.Biden administration officials had hoped to avoid such dysfunction when they reached a deal with Republicans in June to raise the nation’s borrowing limit. That agreement included caps on federal spending that were meant to be a blueprint for congressional appropriations. A faction of Republicans in the House has pushed for even deeper cuts, driving Congress toward a shutdown.Michael Linden, a former economic aide to Mr. Biden who is now a senior policy fellow at a think tank, the Washington Center for Equitable Growth, said immediate economic effects from the shutdown could force Republican leaders in the House to quickly pass a funding bill to reopen the government.“There’s a reason shutdowns tend to be pretty short,” Mr. Linden said. “They end up causing disruptions that people don’t like.” More

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    What China’s Economic Woes May Mean for the U.S.

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    The fallout is probably limited — and there may be some upside for American interests.The news about China’s economy over the past few weeks has been daunting, to put it mildly.The country’s growth has fallen from its usual brisk 8 percent annual pace to more like 3 percent. Real estate companies are imploding after a decade of overbuilding. And China’s citizens, frustrated by lengthy coronavirus lockdowns and losing confidence in the government, haven’t been able to consume their way out of the country’s pandemic-era malaise.If the world’s second-largest economy is stumbling so badly, what does that mean for the biggest?Short answer: At the moment, the implications for the United States are probably minor, given China’s limited role as a customer for American goods and the minor connections between the countries’ financial systems.In a note published Thursday, Wells Fargo simulated a “hard landing” scenario for China in which output over the next three years would be 12.5 percent smaller than previous growth rates would achieve — similar to the impact of a slump from 1989 to 1991. Even under those conditions, the U.S. economy would shave only 0.1 percent off its inflation-adjusted growth in 2024, and 0.2 percent in 2025.That could change, however, if China’s current shakiness deepens into a collapse that drags down an already slowing global economy.“It doesn’t necessarily help things, but I don’t think it’s a major factor in determining the outlook in the next six months,” Neil Shearing, the chief economist at Capital Economics Group, an analysis and consulting firm, said in a recent webinar. “Unless the outlook for China becomes substantially worse.”A potential balm for inflation, but a threat to factories.When considering the economic relationship between the two countries, it’s important to recognize that the United States has played some role in China’s troubles.The United States is well past a boom in consumption during the pandemic that pulled in $536.8 billion worth of imports from China in 2022. This year, with home offices and patios stuffed full of furniture and electronics, Americans are spending their money on cruises and Taylor Swift tickets instead. That lowers demand for goods from Chinese factories — which had already been weakened by a swath of tariffs that former President Donald J. Trump started and the Biden administration has largely kept in place.How Much America Buys From (and Sells to) ChinaMonthly goods imports have fallen since a pandemic-era boom.

    Source: Census BureauBy The New York TimesFor years, China’s leaders have said they want to rely more on the country’s households to drive economic growth. But they have taken few steps to support domestic consumption, such as shoring up safety net programs, which would persuade residents to spend more of the money they now save in case of emergencies.That’s why some are concerned that China could again fall back on encouraging exports to foster growth. Such a strategy might succeed since the Chinese currency, the renminbi, is very weak against the dollar, and it’s possible to evade tariffs on most items by assembling Chinese parts in other countries — like Vietnam and Mexico.An export surge would have countervailing effects. It could lower prices for consumer goods, which — along with falling Chinese demand for commodities like gasoline and iron ore — would help lower inflation in the United States. At the same time, it could counteract efforts to resuscitate American manufacturing, raising the political temperature as the presidential election approaches.“My fear is that an export-based Chinese recovery will run up against a world that is reluctant to become ever more dependent on China for manufactures, and that becomes a source of tension,” said Brad Setser, a senior fellow at the Council on Foreign Relations.And what about goods flowing the other way, from the United States to China? It’s not a huge volume — China accounted for only 7.5 percent of U.S. exports in 2022. American businesses have long sought to further develop the Chinese market, especially for agricultural products such as pork and rice, but success has been underwhelming. In 2018, the Trump administration negotiated a compact under which China would buy billions more dollars in products from U.S. farmers.Those targets were never met. With appetite fading in China, they may never be. That could mean lower food prices globally, but farmers would be hurt.“If their demand for corn and soybeans is rising, that’s good for everybody who produces corn and soybeans around the world,” said Roger Cryan, the chief economist with the American Farm Bureau Federation. “It is something to be concerned about down the road.”Insulation for American institutions and investors.So much for general trade dynamics. But the U.S. economy is composed of millions of companies with particular concerns, and some may have more to worry about as China’s economy flounders.Tesla, for example, had made inroads in the Chinese market, but its sales there have tumbled in recent months in the face of tough competition from local brands with lower-cost models. Apple generates about 20 percent of its revenue in China, which could also take a hit as residents choose cheaper products.American banks that do business globally have noted slowing growth; Citigroup’s chief executive, Jane Fraser, said on the company’s second-quarter earnings call that China had been its “biggest disappointment.”Chinese tourists also pour money into U.S. cities when they visit, which they might do less of going forward. Glenn Fogel, the chief executive of Booking Holdings — which includes travel websites such as Booking.com and Priceline — said in his earnings call that their outbound business from China had been anemic.“I don’t expect a recovery in China for us for some time, significant time probably,” Mr. Fogel said.Those effects, however, are likely to be muted. Even if the economic picture darkens, the American and Chinese banking systems are separate enough to insulate U.S. institutions and investors, aside from the few who might have invested in property developers like Evergrande or Country Garden.“There aren’t realistic channels for financial contagion from China to the U.S.,” Dr. Setser said. While China’s central bank may hold off on buying U.S. Treasury bonds, he noted, any impact on the overall market could be contained. “There’s no real scenario where China disrupts the bond market in a way that the Fed cannot offset.”On the contrary, there may be some upside for American companies if Chinese investors, lacking domestic opportunities, move more of their money into the United States. China’s direct investment in U.S. assets is relatively low and could face new obstacles as states seek to erect barriers to Chinese purchases of U.S. real estate and commercial enterprises. But places that welcome it could benefit.“Given that the U.S. seems to be doing relatively well, you could have money coming to the U.S., both in search of higher yield and in search of safety,” said Eswar Prasad, a professor of trade policy at Cornell University.The wild card of geopolitics.Aside from any direct financial and economic spillovers, it’s worthwhile to consider whether a faltering China meaningfully alters geopolitical dynamics and American interests.Washington has long fretted that a China-dominated trading bloc could limit market access for American companies by setting rules that, for example, contain weak protections for intellectual property. Such a trade agreement came into force in early 2022 after the United States abandoned its push to form the Trans-Pacific Partnership.But if China appears less mighty, it may lose its attractiveness in a fracturing world. Countries that eagerly took loans from China for large infrastructure projects may turn back toward international lending institutions like the World Bank, despite their more stringent requirements.“The fact that the Chinese economy is seen as being in a rough spot, in addition to more aggressive outreach in Asia and elsewhere by the Biden administration, that has shifted the balance a little bit,” Dr. Prasad said.Could China’s economic condition affect its willingness to undertake any military adventures, such as an invasion of Taiwan? While the Communist Party leadership might seek to stir up patriotic spirits through such an attack, Dr. Prasad thinks a shaky economy would in fact make the use of military force less likely, given the resources required to sustain that kind of engagement.One thing to keep in mind: While China appears to be going through a rough patch, the outlook is uncertain. There’s a debate in think-tank circles about whether the country’s economic structure will be durable over the longer term or fundamentally unsound.Heiwai Tang, an economics professor at HKU Business School in Hong Kong, said it would be unwise to consider China the next Japan, on the brink of prolonged stagnation.“I remain optimistic that the government is still very agile and should be responsive to a potential crisis,” Dr. Tang said. “They know what to do. It’s just a matter of time before they come to some kind of consensus to do something.”Ana Swanson More

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    GDP Grew at 2.4% Rate in Q2 as US Economy Stayed on Track

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    The reading on gross domestic product was bolstered by consumer spending, showing that recession forecasts early in the year were premature, at least.The economic recovery stayed on track in the spring, as American consumers continued spending despite rising interest rates and warnings of a looming recession.Gross domestic product, adjusted for inflation, rose at a 2.4 percent annual rate in the second quarter, the Commerce Department said Thursday. That was up from a 2 percent growth rate in the first three months of the year and far stronger than forecasters expected a few months ago.Consumers led the way, as they have throughout the recovery from the severe but short-lived pandemic recession. Spending rose at a 1.6 percent rate, with much of that coming from spending on services, as consumers shelled out for vacation travel, restaurant meals and Taylor Swift tickets.“The consumer sector is really keeping things afloat,” said Yelena Shulyatyeva, an economist at BNP Paribas.The resilience of the economy has surprised economists, many of whom thought that high inflation — and the Federal Reserve’s efforts to stamp it out through aggressive interest-rate increases — would lead to a recession, or at least a clear slowdown in the first half of the year. For a while, it looked as if they were going to be right: Tech companies were laying off tens of thousands of workers, the housing market was in a deep slump and a series of bank failures set up fears of a financial crisis.Instead, layoffs were mostly contained to a handful of industries, the banking crisis did not spread and even the housing market has begun to stabilize.“The things we were all freaked out about earlier this year all went away,” said Michael Gapen, chief U.S. economist at Bank of America.Inflation has also slowed significantly. That has eased pressure on the Fed to keep raising rates, leading some forecasters to question whether a recession is such a sure thing after all. Jerome H. Powell, the Fed chair, said on Wednesday that the central bank’s staff economists no longer expected a recession to begin this year.Still, many economists say consumers are likely to pull back their spending in the second half of the year, putting a drag on the recovery. Savings built up earlier in the pandemic are dwindling. Credit card balances are rising. And although unemployment remains low, job growth and wage growth have slowed.“All those tailwinds and buffers that were supporting consumption are not as strong anymore,” said Blerina Uruci, chief U.S. economist at T. Rowe Price. “It feels to me like this hard landing has been delayed rather than canceled.” More

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    China’s Second-Quarter G.D.P. Shows Post-Covid Rebound Faltered

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    The NewsChina’s economy slowed markedly in the spring from earlier in the year, official numbers released on Monday showed, as exports tumbled, a real estate slump deepened and some debt-ridden local governments had to cut spending after running low on money.The new gross domestic product data for the second quarter — from April through June — underlined what has been apparent for weeks: China’s recovery after abandoning its extensive “zero Covid” measures will be harder to achieve than Beijing and many analysts had hoped.The NumbersCovid not only still hangs over China’s economy; it also skews some of its official data. The main G.D.P. number reported by Beijing on Monday, comparing this year with the same quarter last year, showed that the economy expanded 6.3 percent. But that reflected improvement from a sharp slowdown in 2022’s second quarter, a period when China’s largest city, Shanghai, was in a two-month lockdown. More

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    GDP Data Shows US Economic Growth Rate of 2% in Q1

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    The NewsThe United States economy grew faster early this year than previously believed.Gross domestic product, adjusted for inflation, expanded at an annual rate of 2 percent in the first three months of the year, the Commerce Department said Thursday. That was a significant upward revision from the 1.1 percent growth rate in preliminary data released in April. (An earlier revision, released last month, showed a slightly stronger rate of 1.3 percent.)An alternative measure of growth, based on income rather than production, painted a different picture, showing that the economy contracted for the second quarter in a row. That measure was also revised upward from the prior estimate.The report underscored the surprising resilience of the country’s economic recovery, which has remained steady despite high inflation, rapidly rising interest rates and persistent predictions of a recession from many forecasters on Wall Street.The new data is cause for “genuine optimism,” wrote Gregory Daco, chief economist at EY, the consulting firm previously known as Ernst & Young, in a note to clients. “This is leading many to rightly question whether the long-forecast recession is truly inevitable.”Consumers are powering the recovery through their spending, which increased at a 4.2 percent rate in the first quarter, up from a 1 percent rate in late 2022 and faster than the 3.7 percent rate initially reported in April. That spending, fueled by a strong job market and rising wages, helped offset declines in other sectors of the economy like business investment and housing.Consumers are powering the recovery through their spending, which increased at 4.2 percent rate in the first quarter.Jim Wilson/The New York TimesWhat It Means: Complications for the Fed.The continued strength of the consumer economy poses a conundrum for policymakers at the Federal Reserve, who have been raising interest rates in an effort to curb inflation without causing a recession.On the one hand, data from the first quarter provides some signs of success: Economic growth has slowed but not stalled, even as inflation has cooled significantly since the middle of last year.But many forecasters, both inside and outside the central bank, are skeptical that inflation will continue to ease as long as consumers are willing to open their wallets — meaning policymakers are likely to take further steps to rein in growth. At their meeting this month, Fed officials left interest rates unchanged for the first time in more than a year, but they have signaled they are likely to resume rate increases in July.The Fed chair, Jerome H. Powell, at a conference in Madrid on Thursday, noted that inflation had repeatedly defied forecasts of a slowdown.“We’ve all seen inflation be — over and over again — shown to be more persistent and stronger than we expected,” he said.What’s Next: Data on income and spending.Mr. Powell and his colleagues will get more up-to-date evidence on their progress on Friday, when the Commerce Department releases data on personal income, spending and inflation from May.Jeanna Smialek More

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    G.D.P. Report: U.S. Economy Grew at 1.1% Rate in First Quarter

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    The gross domestic product increased for the third straight quarter as consumer spending remained robust despite higher interest rates.Higher interest rates took a toll on the U.S. economy in early 2023, but free-spending consumers are keeping a recession at bay, at least for now.Gross domestic product, adjusted for inflation, rose at a 1.1 percent annual rate in the first quarter, the Commerce Department said on Thursday. That was down from a 2.6 percent rate in the last three months of 2022 but nonetheless represented a third straight quarter of growth after output contracted in the first half of last year.The figures are preliminary and will be revised at least twice as more complete data becomes available.Growth in the first quarter was dragged down by weakness in housing and business investment, both of which are heavily influenced by interest rates. The Federal Reserve has raised rates by nearly five percentage points since early last year in an effort to tamp down inflation.Consumers, however, have proved resilient in the face of both rising prices and higher borrowing costs. Inflation-adjusted spending rose at a 3.7 percent annual rate in the first quarter, up from 1 percent in the prior period. Consumers have been buoyed by a strong job market and rising wages, which have helped offset high prices.Spending slowed as the quarter progressed, however, and forecasters warn that it could weaken further amid headlines about layoffs, bank failures and warnings of a possible recession.“Consumer spending is still moving up, but I don’t know how long that can last,” said Ben Herzon, an economist at S&P Global Market Intelligence. “Confidence is weak and has been weakening. You’ve got to wonder, will that soon translate into a pullback in spending?”A gradual slowdown would be welcomed by Fed policymakers, who have been trying to cool off the economy enough to bring down inflation, but not by so much that it leads to widespread layoffs and unemployment.“It’s not a free fall,” said Dana Peterson, chief economist at the Conference Board, a business group. “It’s a controlled descent, and that’s what the Fed is trying to achieve with higher interest rates.” More

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    U.S. Economy Grew at 2.9% Annual Rate in Fourth Quarter

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    The continued growth in the fourth quarter showed the resilience of consumers and businesses in the face of rising inflation and interest rates.The economy remained resilient last year in the face of inflation, war and a Federal Reserve intent on curbing the pace of growth.A repeat performance in 2023 is far from guaranteed.U.S. gross domestic product, when adjusted for inflation, increased at an annual rate of 2.9 percent in the fourth quarter of 2022, the Commerce Department said on Thursday. That was down from 3.2 percent in the third quarter, but nonetheless a solid end to a topsy-turvy year in which the economy contracted in the first six months, prompting talk of a recession, only to rebound in the second half.Beneath the quarterly ups and downs is a simpler story, economists said: The recovery from the pandemic recession has slowed from the frenetic pace of 2021, but it has retained momentum thanks to a red-hot job market and trillions of dollars in pent-up savings that allowed Americans to weather rapidly rising prices. Over the year as a whole, as measured from the fourth quarter a year earlier, G.D.P. grew 1 percent, down sharply from 5.7 percent growth in 2021.“2020 was the pandemic; 2021 was the bounce-back from the pandemic; 2022 was a transition year,” said Jay Bryson, chief economist for Wells Fargo.The question is, a transition to what? Mr. Bryson, like many economists, expects a recession to begin sometime this year, as the effects of higher interest rates ripple through the economy.The initial rebound from the pandemic recession was much stronger in the United States than it was in much of the rest of the world. The gap widened last year as the war in Ukraine threatened to push Europe into a recession and the strict Covid suppression policies in China constrained growth there.But the U.S. economy faces fresh challenges in 2023. Inflation remains too high by many measures, and the Fed is expected to continue increasing rates in an effort to bring prices under control. A congressional showdown over raising the debt ceiling could cause further turmoil in financial markets — or a crisis if lawmakers fail to reach a deal.Inflation F.A.Q.Card 1 of 5What is inflation? More

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    Why The Times Is Resuming its Emphasis on Annualized Figures for GDP

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    When the pandemic first disrupted the U.S. economy — and economic data — in 2020, The New York Times changed the way it reported certain government statistics. Now, with the pandemic shock no longer producing exceptional economic gyrations, it is changing back.On Thursday, with coverage of the Commerce Department’s preliminary estimate of U.S. gross domestic product for the fourth quarter of 2022, The Times is again emphasizing the annualized rate of change from the prior quarter, rather than the simple percentage change from one period to the next.In the United States, G.D.P. figures have traditionally been reported at an annualized rate, meaning the amount the economy would have grown or shrunk if the quarter-to-quarter change had persisted for an entire year. Annual rates make it easier to compare data collected over different periods, allowing analysts to see quickly whether growth in a quarter was faster or slower than in 2010, for example, or in the 1990s as a whole. But annual rates can also be confusing, particularly during periods of rapid change. When shutdowns crippled the economy early in the pandemic, G.D.P. contracted at an annual rate of nearly 30 percent. To nonexperts, that might sound as if economic output had shrunk by nearly a third, when in reality the decline was less than 10 percent. As a result, The Times decided to emphasize the quarterly change in its coverage, a decision explained in detail at the time. (The Times continued to provide the annualized figures as well.) But now — despite ongoing disruptions tied to the pandemic and new challenges, like high inflation — economic data is beginning to look more normal. So The Times is returning to its practice of reporting G.D.P. and related statistics as annualized rates. More