As Goldman Slashes 0.5% From Q4 Growth, How Much More "Government Shutdown" GDP Pain Is There?

Tyler Durden's picture

Over the past month there has been a sudden shift in the public's attention to the debt ceiling debate and away from the government shutdown, which since it did not result in the Armageddon many had predicted (same as the sequester) has been promptly forgotten. However, the reality is that while government workers are getting a post-facto paid vacation when the government reopens, current consumption is substantially curtailed and furthermore, government appropriation budgets are in limbo and thus unspent (for a prior analysis of how the calendar of government appropriations may favorable impact the late summer economy, read here). Which means with every passing day the US economic output is declining, and once again sellside analyst estimates will (as usual) have to be substantially lowered.

Enter Goldman Sachs, whose Alex Phillips just said that: "If a longer-term resolution can be reached over the coming days, we would expect the downside risk from the fiscal debate to be limited to about 0.5pp in Q4, compared to our current growth forecast of 2.5%." In other words, pro forma for the 14 day government shutdown (and continuing) Goldman has just cut its Q4 GDP forecast from 2.5% to 2.0%. And to think this was the year that Jan Hatzius was desperately praying his optimism (for the 4th year in a row - and who can possibly forget Hatzius boosting its Q4 2010 GDP estimate from 4% to 5.8% - and the same every year since) would finally be rewarded. Sorry Jan: we were right again, you were wrong. Again.

But the bigger issue for the US economy is that with every passing day, another chunk of consumption, i.e., economic growth is being eliminated. How much? Goldman explains:

From October 1-4, we believe the shutdown probably reduced federal compensation by roughly $400mn per day. We would expect the non-compensation aspects of the initial stage of the shutdown to have been very modest. Overall, the first four business days of the shutdown probably reduced growth by 0.16pp.


The shutdown has now lasted a second week, but the incremental effect should be smaller. The Department of Defense has brought most of its employees back to work, leaving 450k federal employees still out of work, and thus reducing the effect on federal compensation to $225mn per day. We would expect a small reduction in services-related consumption as well. After the second week of shutdown, we believe the cumulative reduction in Q4 real GDP growth amounts to 0.28pp (Exhibit 2).


From here the direct effects of shutdown will depend on the flow of federal employees into and out of work, and whether agencies draw down remaining funds which could deepen the spending reduction. As the shutdown entered its second week, a few agencies recalled workers as needs arose. Other agencies have only recently furloughed workers as residual funding for activities ran dry. If the shutdown continues, our impression is that the net effect of this will be that more workers will be furloughed as days go by, but that this is unlikely to change the aggregate effect substantially.


Going forward, the effect that the ongoing debate will have on growth will depend on whether the agreement reached over the coming days is limited to only a short-term extension, or if a longer-term (i.e., through 2014) resolution is achieved. It also of course depends on whether the shutdown is ended over the coming week. As noted earlier, at this stage the duration of the agreement is unclear, but it seems increasingly likely that the shutdown will be ended with the resolution of the debt limit. If a longer-term resolution can be reached over the coming days, we would expect the downside risk from the fiscal debate to be limited to about 0.5pp in Q4, compared to our current growth forecast of 2.5%.

And what if a resolution can not be reached in the coming days, and government remains shut for the foreseeable future? As shown on the chart below, the GDP decline is largely cumulative and linear, and with every passing business week, another 0.2% in Q3 GDP is wiped out.

In other words, if for some reason government is not reopened for the entire 4th quarter, just the government shutdown alone will push Q4 GDP to 0%, assuming the consensus is accurate in its 2.0% starting estimate. This of course excludes the massive hit on corporate confidence as a result of the lack of major government appropriations, which we believe reduce Q4 GDP by another 0.2% per week however not linearly, but exponentially, and the longer the shutdown continues, the more negative Q4 GDP will be.

Which, perversely, is precisely what the Fed needs. Because while on one hand the lack of economic data will not shock everyone into grasping just how depressed the economy has become, the realization once everything reopens will be precisely the carte blanche Yellen needs for the Fed to continue an Untapered QE well into 2014, and with that preserving the wealth effect for Yellen's superior: the criminal banking syndicate.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Teddy Tenpole's picture



Slam dunk, right :)

stocktivity's picture

Futures coming back....It's all Bullshit!!!

knukles's picture

Excuses excuses excuses....

Lemme tell y'all sometin'

It's not a recession until your internet is cut off and you have to masturbate to the woman in a red bikini on the Special K box.

Hedgetard55's picture

Can someone explain to me how a goy like Corzine becomes CEO of Goldman?

Hulk's picture

Thats the last time I'm eating breakfast at your house !!!

Pure Evil's picture

The real question is is this from personal experience or did he see it being done in some tranny porn movie while on tour at the SEC?

Hulk's picture

I believe it was from childhood experience. The creepy thing is that he let his mom watch...

knukles's picture

Actually, Hulk, mom said I was far too immature to do it without adult supervision. She really cared.

Seasmoke's picture

Special K is expensive. I masturbate to the Trix rabbit. 

disabledvet's picture

shut it down. crash the dollar. ramp up production of Teslas. build a million wind turbines and cover the entire State of Minnesota with them. let those interest rates spike, let's see who was on the right side of history for a change. growth for the bailout states continues to decline (save California)...whereas all the other ones who have to work for a living are seeing their growth rates surge. if this Government is the best that all this new money can buy who wouldn't say sell?

Spastica Rex's picture

Is the "economy" "self sustaining" at less than 3% (if even ersatz) annual growth?

Being Free's picture

our current growth forecast of 2.5%


CrashisOptimistic's picture

So GS is cutting forecast to 2%, which uses the June redefinition of GDP that was worth an elevation of 0.6%.

In other words, by historical standards of measure, GS is now calling for 1.4%.

asteroids's picture

Stall Speed. Recession is inevitable.

Hedgetard55's picture

Yellen will be jellin' like a felon, printing money like a QE sellin' hellion.

fonzannoon's picture

the only thing that matters is the fed.

Everybodys All American's picture

and the value of the dollar. They can print until they can't and when that time comes it's gonna be ugly.

fonzannoon's picture

if they were actually dropping it from helicopters i'd be more inclined to agree.

Teddy Tenpole's picture



Well, the Fed combined with bad news :)

q99x2's picture

Shut down Goldman Sachs and then see what the GDP is.

monkeyshine's picture

"pro forma for the 14 day government shutdown (and continuing) Goldman has just cut its Q4 GDP forecast from 2.5% to 2.0%"

(Sorry for yellen)

surf0766's picture


knukles's picture

"Sorry Jan"?
No you're not!

Well, so long for now, folks, gota go watch the Walking Dead...
About the only program, other than Dancing with the Cripples, for which you need no talent.... well and the Kardashians, reality shows, game shows, day time network shows, news, sports.... lemme think here....

Atomizer's picture

Anyone watching the 60 minutes segment will understand Bernanke is selling the US down to the new Global pacifier for collecting new unclaimed revenues to support a wobbly Ponzi counterfeit printing management. One of the pointed questions never asked, why has no one ever been arrested during your Federal Reserve Chairman tenure?  


  • Bank of International Settlements
  • World Bank
  • United Nations
  • Club of Rome
  • Gang Rape( insert anal probe number G?)


A Lunatic's picture

The shutdown that isn't a shutdown is going to negatively affect what would have been a practically nonexistent GDP anyhow..........

ebworthen's picture

I'd prefer more pain for the Ponzi, but there will be a "compromise" to fuck over the citizenry.

I guarantee it!

Croesus's picture

It's only natural that an "agreement" will be reached, and the American Sheeple will rejoice at another opportunity to say BOHICA! (Bend Over, Here It Comes Again). 

DC will stop at nothing to protect the stock market. They own a lot of these stocks personally, and these same stocks are from the same criminal corporations that finance their (re)election campaigns...

Do the Math. 

Make_Mine_A_Double's picture

I'm thinking the - .5% he's referring to was yesterday's EBT card shutdown. Saturday being 'the' shopping day for the unemploy(able)ed.

Sounds about right to me given the economy is practically to a complete stall.

Downtoolong's picture

QE well into 2014, and with that preserving the wealth effect for Yellen's superior: the criminal banking syndicate.

“Everything that has transpired has done so according to my design. I have foreseen it.”

Emperor Palpatine.

Kreditanstalt's picture


How can closing down a government - and its spending - DETRACT from GDP?  Wouldn't it just leave more money in the hands of the private, real economy?

yrbmegr's picture

That's what conservatives always preach.  Could they be wrong?!

khakuda's picture

Because government spending is included in GDP. Seems crazy, doesn't it? Government can borrow money or print it to spend it, ie money it doesn't have, and it can point to all the GDP it created in the process. GDP is a bullshit number. Just ask the Chinese.

Kreditanstalt's picture

I guess the theory goes that since the money spent (at least that not borrowed or printed!) would have been spent anyway by the private sector it should be counted as GDP even with government spending it. we all know, governments are THE WORST allocators of capital: no profit motive and blind to market signals.

nakki's picture

The best way for the few to take more from the many is to blow out the stocks again. With that, the banks that are left will get a bigger share of everything and moar QE to boot. Its just a matter of time. Not sure when but it will happen, but my guess is within the next 9 months.

I Write Code's picture

GDP is what Bernanke says it vill be, and Goldman is his profit.

PowerPlayer's picture

There will never be a taper.  BTFD

lasvegaspersona's picture

so government spending IS the US economy?

WTFUD's picture

No the government are bad banks and the bad banks ( all insolvent ) are the government, alas, farewell.