Here Comes the Economic Shutdown Shock

A jump in unemployment claims shows the early negative effects of the government shutdown.

Jason Furman, assistant to the President for Economic Policy and Principal Deputy Director of the National Economic Council, gestures as he speaks during the daily news briefing at the White House in Washington, Wednesday, Dec., 5, 2012.

White House Council of Economic Advisers Chairman Jason Furman cited the jump in unemployment claims reported today as a sign that the uncertainty surrounding the shutdown and a possible default is having negative effects on the economy.

First-time claims for unemployment rose to 374,000 last week, 66,000 more than the previous week – the largest one week jump since Superstorm Sandy. "You see increases that large only every couple of years," he told reporters at a breakfast sponsored by the Center for American Progress. "It's a very large increase."

He noted that a huge chunk of the increase came from California, saying that the Golden State's "data has been really quirky lately because something's going on with their computer system over there so we don't know exactly how to interpret that. But regardless of how you interpret California it's still a very, very large increase in claims." And he also noted that the increase does not reflect new claims by federal workers who have been furloughed, as they are reported separately. (Around 15,000 of the claims did come from private sector workers who rely on federal spending for their jobs.)

[See a collection of political cartoons on the government shutdown.]

"This is a bigger effect than people were expecting to see in the claims this week, so that's one indicator of the broader economy," he said. Asked if he was saying it was directly related to the shutdown, Furman said, "I think claims together with the other data we're seeing are consistent with a substantial negative impact of this on the private sector. Those claims data report are consistent with a negative impact."

This should not be surprising. As Furman also noted, studies have estimated that every week the government is shut down reduces economic growth by 0.15 percent (which means we're up to 0.3 percent as we close in on two weeks of shutdown). "That's not the difference between a recession and an expansion but that's clearly in the wrong direction," he said.