US Government Shutdown Forces 800,000 into Unpaid Leave

The partial shutdown of the US government would cost the country anywhere from $300m a day to $10bn in a week in lost economic output, according to economic consultancies and the White House.

According to IHS, which puts the daily loss at $300m, a tiny fraction of America's gigantic $15.7tn (£9.7tn, €11.6tn) economy, a prolonged shutdown could badly hit the world's leading economy as it can put the brakes on consumer and business spending.

IHS estimated that a week-long shutdown would reduce fourth quarter growth by 0.2 percentage point to 2%.

But the White House estimated that if the shutdown lasted for a week, the economy would lose about $10bn.

A two-week shutdown could cut growth by 0.3 percentage point to a 2.3 percent rate, according to an estimate by Macroeconomic Advisers.

A three-to-four week shutdown would cut growth by 1.4 points, estimated Mark Zandi, chief economist at Moody's Analytics. Zandi forecasted a 2.5% growth rate for the fourth quarter without a shutdown.

Close to 800,000 government employees, including 400,000 in the defence department, will be forced to take unpaid leave.

"Each day the shutdown drags on, the more federal employees will discount the possibility that they won't get back to work anytime soon, and they will pull back on their spending," Zandi told Bloomberg.

Shutdown Impact

The partial shutdown is the first for the US government in 17 years when services were suspended for a record 21 days in a budget standoff with the Clinton administration.

"Office buildings would close. Paycheques would be delayed. Vital services that seniors and veterans, women and children, businesses and our economy depend on would be hamstrung. Business owners would see delays in raising capital, seeking infrastructure permits, or rebuilding after Hurricane Sandy. Veterans who've sacrificed for their country will find their support centres unstaffed," President Barack Obama warned.

"Tourists will find every one of America's national parks and monuments, from Yosemite to the Smithsonian to the Statue of Liberty, immediately closed. And of course, the communities and small businesses that rely on these national treasures for their livelihoods will be out of customers and out of luck."

Political Gridlock

The shutdown followed the passing of a deadline to approve a budget for the 2014 financial year.

A failure to keep the government running "would throw a wrench into the gears of our economy," Obama said.

"The idea of putting the American people's hard-earned progress at risk is the height of irresponsibility, and it doesn't have to happen," he added.

Stock Markets Hit

Earlier, On Wall Street, indices ended lower against the backdrop of an imminent shut down of the federal government.

The Dow finished 128.57 points lower at 15,129.67. The S&P 500 ended 10.20 points lower at 1,681.55, while the Nasdaq closed 10.12 points lower at 3,771.48.

All key S&P sectors closed in the red, pulled down by energy and consumer staples.