President Donald Trump, who blamed Federal Reserve interest-rate increases last year for slowing economic growth despite the stimulus from his late-2017 tax cuts, may find it tougher to dodge accountability for the latest millstone: the partial U.S. government shutdown.
The bank slashed its forecast for first-quarter GDP by 0.2 percentage point to an annual rate of 2%, according to the report.
Barclays research also reduced its forecast for growth.
"We have revised down our US forecast for Q1 real GDP growth by 0.5pp to 2.5% q/q saar as the shutdown there takes hold and additional indirect effects pile up," economists including Michael Gapen wrote in a note.
The analysis comes amid reports that Trump is considering reopening the government for three weeks to relieve some of the stress the shutdown has caused.
Talks to reopen the government have stalled over Trump's insistence on $5.7 billion of funding for a barrier along the U.S. border with Mexico. Without a resolution to the impasse, some 800,000 workers are likely to miss a second consecutive paycheck on Friday, according to the New York Times. And a shortage of air traffic controllers -- an unusually high number of them have been calling in sick, after working without pay for more than a month -- caused significant flight delays in the eastern U.S.
"We will continue to slice the forecast for 1Q the longer the government is shut," the Bank of America economists wrote. "Indeed, our calculations show that the negative impact will magnify the longer the shutdown runs."
They estimated a 0.1 percentage-point hit to growth from the direct impact of the shutdown -- mainly from the loss of government spending. There's another 0.1 percentage-point decrease from the "indirect pain -- the drag to private consumption and investment," according to the report.
The shutdown also may have hurt consumers' assessment of the economy's health, and such "confidence shocks could magnify the negative impact of the shutdown," they wrote.
Additional risks include a curtailment of food-stamp benefits by the end of March, a delay in U.S. tax refunds and lags in approvals of Small Business Administration loans, according to the report.
The Bank of America report comes as a growing number of economists say the protracted shutdown, now in its 35th day, could take a bigger toll on output than the 20 briefer U.S. government shutdowns that have occurred since 1976.
David Bianco, chief Americas investment strategist at the Deutsche Bank-controlled money manager DWS Group, which oversees about $800 billion of client assets, wrote that every 10 days of a shutdown reduces quarterly GDP by about 0.1 percentage point.
"Every day this shutdown continues, the more likely it weighs on growth than past shutdowns did, and the more difficult to recoup lost growth when the government opens," Bianco wrote. "We are now at the point where an urgency to compromise should exist."