WASHINGTON (AP) — The longest federal government shutdown in U.S. history is coming to an end, but it has left a significant impact on the economy.
Since October 1, around 1.25 million federal workers have gone without pay. This has led to thousands of canceled flights and disruptions in various services, even as Congress pushes to reopen the government. Some food assistance programs have also been affected, making life harder for many families.
While federal workers will receive back pay once the government reopens, some businesses won’t recover from losses tied to canceled plans and unspent money. Gregory Daco, chief economist at EY, noted that “short-lived shutdowns usually go unnoticed, but this one is different due to its length and the widespread disruptions it caused.”
The Congressional Budget Office estimated that a six-week shutdown could lower the U.S. economic growth for this year’s fourth quarter by 1.5 percentage points. This is a significant drop from the previous quarter. Additionally, about $11 billion in economic activity might be permanently lost.
In comparison, the last shutdown lasted 35 days and had a smaller impact, only affecting GDP by about 0.02%. This time, the economic landscape is already fragile due to factors like sluggish hiring and persistent inflation, but most economists don’t predict a recession.
The shutdown may raise the unemployment rate by 0.4 percentage points, increasing it from 4.3% to about 4.7% in October. Once the government reopens, most federal workers will be counted as employed again.
Here’s how the shutdown is hitting the economy:
Missed Paychecks
Federal workers will miss around $16 billion in wages by mid-November, according to the CBO. This loss results in reduced spending at stores and restaurants, as people save money instead of splurging on holiday travel or large purchases. President Trump had initially threatened not to provide back pay, but lawmakers have ensured that workers will get their lost wages after the government reopens.
In Washington, D.C., where unemployment was already at 6%, the shutdown has worsened job conditions. The area has the highest concentration of federal workers, impacting local economies significantly. Federal employees make up about 5.5% of Maryland’s workforce and have notable representation in other states like New Mexico and Alaska.
Flight Disruptions
Airlines canceled over 5,500 flights as air traffic controllers missed paychecks. Economic consulting firm Tourism Economics estimates that the shutdown may cost the travel industry $2.6 billion over six weeks, which affects hotels, restaurants, and taxi services. Many federal employees have already canceled trips, which won’t be rescheduled even if the government reopens.
Consumer Sentiment
The shutdown has dimmed Americans’ views on the economy. Consumer sentiment has dropped to a three-year low, with people feeling pessimistic about their personal finances. The University of Michigan reported that sentiment fell to 50.4—down 6.2% from the previous month.
Federal Spending
While the shutdown hasn’t halted all federal spending, it has slowed down purchases and new contracts. Economist Bernard Yaros estimates that about $800 million in new contracts are at risk of being not awarded daily. Departments like Defense and Homeland Security have seen a significant pause in new contracts during this time.
SNAP Benefits
In November, the shutdown delayed $8 billion in monthly SNAP food aid for 42 million people. Some states managed to keep benefits flowing, but the uncertainty is palpable. There’s currently a congressional proposal to fully fund SNAP benefits, which could ease some of the strain.
Interest Rate Cuts
The government shutdown has also disrupted the flow of crucial economic data that the Federal Reserve needs. This uncertainty means the Fed might skip a planned interest rate cut in December, discouraging borrowing and spending in the months ahead. Fed Chair Jerome Powell noted that the lack of data clouds economic assessments, leaving the economy in a fog.
The impacts of this shutdown are significant, and as we look forward, many hope for a smoother road ahead as the government reopens its doors.
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