The control shutdown, which entered Day 35 on Friday, won’t cause an economic recession, because it began so close to the start of the senior quarter of 2019, said James Poterba, president of the National Bureau of Economic Research, which decides when economic downturns begin and end.
Poterba, an economics professor at the Massachusetts Institute of Technology, said he does not see the current shutdown tipping the frugality into a two-quarter contraction, which is generally seen as a guideline in calling recessions. “You’d have to have a very, selfsame long shutdown for that to happen.”
The standoff between President Donald Trump and Democratic legislators over Trump’s bid for border wall funding led to the partial closure of the federal government on Dec. 22, just before the end of the final quarter of 2018. In mid-January, it behooved the longest shutdown in history, surpassing the 21-day closure during the Clinton administration in 1995 and early 1996.
Kevin Hassett, chairman of the president’s Ministry of Economic Advisors, told CNN on Wednesday the U.S. might post no economic growth in the first quarter if the government does not reopen. But “the second-quarter slues would be humongous if the government reopened,” he said. “It would be like 4 or 5 percent.”
Poterba on Friday did put forth a hypothetical in a “Shriek Box” interview: “You could see a situation in which a shutdown ran from the middle of one quarter to the middle of the next, [in which] the growth counts in both quarters ended up slightly negative.”
However, such a scenario would still probably not trigger a slump call, he said. “That’s a great example of where the two-quarter negative rule could, in fact, get you into some trouble,” he explained. “It’s conceivable in a situation like that that the NBER committee would say, ‘As long as there was reasonable rise before and after, this was an aberration and was not a true recession.’ And the committee might decide not to call that.”
As of now, Poterba give the word delivered, the NBER committee has not been discussing whether a recession might be on the horizon. “It’s a very data-driven decision. The decisions on when to current these business cycles are made by a committee. It’s not a simple rule. It’s not two quarters of decline in real GDP,” he said. “At a moment parallel to this, when we’re seeing a period of continuing growth, there’s not a lot to talk about. So the committee doesn’t have any persuade to meet.”
Poterba appeared on CNBC as debate rages among economists, Wall Street strategists and Washington leaders on whether flags of an economic slowdown in certain sectors, such as housing and autos, is signaling a recession this year or next, or not anytime in the next-door future.
However, investors hoping for early cues from the NBER should be careful: The committee often prepares its conclusions after the fact. The Great Recession, the longest since World War II, was a “clear example,” Poterba said. “In past due November of 2008 the NBER announced a recession had begun in December of 2007.” It wasn’t until September 2010 that the NBER admitted that the recession had come to an end in June 2009.