A US federal government shutdown would have a temporarily negative impact on the US economy, prove highly disruptive for businesses, affected workers, financial markets, and the Fed.

Key Economic Impacts

If Congress and the White House fail to deliver a federal government funding package, then vast parts of the US government will cease regular functioning (for more see Government Shutdown Looms).

The hit to GDP growth is typically modest. Past shutdowns reveal that the effect on real GDP growth is transitory as spending and work resumes once the government reopens. Still, depending upon the duration, the initial cut to real GDP growth in the quarter it occurs could range from 0.1 percentage point to 0.3 percentage point. The longest federal government shutdown was for 35 days starting in late December 2018 and ending around mid-January 2019.

Labor market implications are uneven. Again, once the federal government reopens, federal workers who were furloughed or worked without pay during the impasse are made whole, receiving back pay. There are roughly 4 million federal workers, but not all would be placed on furlough. Roughly 2 million are postal workers and would not stop working or receiving checks because the US postal service would remain funded. The other 2 million are defense and non-defense federal workers. During the 2018 shutdown, about 850,000 non-postal workers were furloughed. During furlough, workers do not report to work, nor do they receive pay. Non-postal workers that are not furloughed, typically those involved in critical activities like defense or protective services, must continue working, but are not paid during the shutdown. However, government contractors and private businesses that are disrupted amid the crisis are not guaranteed renumeration and would suffer permanent economic losses.

Major business disruptions are possible on top of the inconvenience and hardship for consumers. Businesses reliant upon the government functioning will face disruptions even beyond lost revenues and wages. For example, no copyright applications, federal permits, or federal loans would be issued or processed during the shutdown. Meanwhile, furloughed workers and laborers working for firms impacted by the shutdown may fall behind in payments for mortgages, rent, credits cards, and other loans because of the delayed or missed paychecks. Amid past shutdowns, the Federal Reserve and a host of other federal regulators issued notices to financial institutions asking them to be patient and work with their affected customers. Businesses that serve federal workers would also suffer, although the impact of this might be more muted in the Washington, DC area as many federal staffers are still working remotely post-pandemic. Indeed, those businesses should have already adjusted or closed in response to that shock.

The Fed and financial markets will be in the dark. It is critical to note that if the shutdown is extended, it will delay key economic data releases, including some from regional Federal Reserve Banks and private data providers, including The Conference Board. This is because most government data agencies including the Bureau of Economic Analysis, the Census Bureau, and the Department of Agriculture will close. Other agencies like the BLS and Treasury likely will remain open in part but will be hamstrung by a lack of data from closed federal agencies or furloughed data collectors, preventing them from producing key indicators. Due to delayed economic information, the Fed will be in the dark about the health of the US economy, which was the case in 2013 and 2019. Financial markets will also be impacted by the data black-out, as the crisis will inhibit trading and proper oversight as several regulatory agencies will be shuttered during the shutdown. Additionally, when shutdowns are extended, it takes time for federal data agencies to catch up, which makes it difficult to determine US economic activity. 

Impacted Government Economic Indicators

Census Bureau:

• Retail Sales
• International Trade
• Construction spending
• Business inventories
• Housing starts and permits
• New Home Sales
• Durable Goods Orders
• Factory Orders

Commerce:

• Auto & Truck Sales

Bureau of Labor Statistics:

• JOLTS
• Employment Report
• CPI / PPI inflation
• Import / Export prices
• Productivity and costs

Department of Labor:

• Initial and continuing jobless claims

Bureau of Economic Analysis:

• GDP
• Personal Income and Outlays (including PCE, and the PCE deflator inflation)

Treasury Department:

• Treasury international Capital (TICS)
• Daily Treasury Statement
• Monthly Treasury Statement

The Conference Board

• US Leading Economic Indicator (LEI)
• Employment Trends Index (ETI)
• Help Wanted Online (HWOL)

Impacted Government Economic Operations and Services

What parts of the government will be affected?

What government services will be affected?