Executive Summary

• The government shutdown that began on October 1 is in its 36th day, making it the longest in history; a shutdown of this magnitude has significant and wide-ranging economic and budgetary costs.
• Fourth-quarter real gross domestic product has dropped $18 billion below what it would have been without the shutdown and could fall further if the shutdown persists.
• Missed paychecks for excepted and furloughed federal employees have already exceeded $9 billion and could reach $23 billion if the shutdown lasts for two months.
• Federal spending has been temporarily reduced by $33 billion and could be reduced by up to $74 billion if the shutdown lasts for eight weeks.

Introduction

The government shutdown that began on October 1 is in its 36th day, making it the longest in history. A shutdown of this magnitude has significant and wide-ranging economic and budgetary costs that extend beyond the political debates in Washington. Those costs are discussed below.

Economic Costs

The economic impact of a prolonged government shutdown is far-reaching, affecting everything from gross domestic product (GDP) growth to small business revenues.

One major economic cost is the loss of income for federal employees and government contractors. The Congressional Budget Office (CBO) estimates the current shutdown has furloughed roughly 650,000 federal employees, disrupting essential public services such as food and safety inspections, passport processing, and national park operation. Another 600,000 federal employees have been deemed excepted – including air traffic controllers and federal prison guards, for example – and are thus required to work during the shutdown without pay. In both cases, the uncertainty surrounding the duration of the shutdown and the loss of income has created financial strain on federal employees.

As a result, excepted and furloughed workers have cut back on their spending to manage their budgets and some have even taken on additional employment, such as food delivery or rideshare, to earn income while they aren’t being paid by their federal government employer. Local businesses – especially those located near federal offices or dependent on federal employees for business – have likely experienced reduced sales. CBO estimates that missed paychecks have already reached around $9 billion and will rise to $16 billion if the shutdown lasts for six weeks and to $23 billion if it lasts for eight weeks. While guaranteed back pay will eventually restore this lost income, the interruption in cash flow has hurt consumer confidence and local businesses.

At the national level, a prolonged shutdown ultimately slows GDP growth. CBO estimates that fourth-quarter real GDP will be lower than it otherwise would have been because fewer services are being provided by federal workers, federal spending on goods and services is lower, and aggregate demand has been temporarily suppressed. CBO expects real GDP to rebound when appropriations resume. Yet the reduction in output from the time excepted and that furloughed employees did not work will lead to between $7–$14 billion of real GDP that cannot be recovered.

CBO estimates that as of October 29 – exactly four weeks after the shutdown began – fourth-quarter real GDP has dropped $18 billion below what it would have been without the shutdown. This translates to a one-percentage point reduction in the annualized quarterly growth rate. If the shutdown goes on for six weeks until November 12, fourth-quarter real GDP would drop by $28 billion, the equivalent of a 1.5-percentage point reduction in the annualized quarterly growth rate. If the shutdown lasts eight weeks until November 26, fourth-quarter real GDP would be $39 billion lower, the equivalent of a two-percentage point reduction in the annualized quarterly growth rate.

Budgetary Costs

CBO estimates the shutdown has temporarily decreased federal spending. Notably, however, when the shutdown ends and appropriations resume, the delayed spending will be made up.

As of October 29, the shutdown has reduced federal spending by $33 billion. This is the net effect of $9 billion of delayed compensation for excepted and furloughed federal employees and $24 billion of delayed spending on goods and services, including equipment, research and development contracts, and advisory services. If the shutdown lasts until November 12, federal spending would be $54 billion lower. This includes $16 billion of missed paychecks for federal employees, $36 billion of delayed spending on goods and services, and $2 billion of delayed spending on the Supplemental Nutrition Assistance Program (SNAP). SNAP benefits were paid in full in October but lapsed on November 1, and there is uncertainty surrounding the degree to which November benefits will be paid.

If the shutdown lasts until November 26 – a full eight weeks – federal spending would be $74 billion lower. This includes $23 billion of delayed paychecks for federal employees, $48 billion of delayed spending on goods and services, and $4 billion of delayed SNAP spending.

It is important to note that these figures are all subject to a degree of uncertainty. CBO assumes the temporary reduction in federal spending will be made up when the government reopens. It does not, however, account for the costs of administrative work, overtime pay, and contract renegotiations that are needed to restart operations after a shutdown ends.

Conclusion

The current government shutdown, which is the longest in history, has disrupted many federal programs and agencies by forcing a discontinuation of all nonessential discretionary functions. It has become a drag on the overall economy by stalling growth, harming businesses, and undermining financial stability. It has also imposed costs on the federal budget that would otherwise not exist had the government remained open.