The current government shutdown represents not only a historical milestone but also the longest duration in the annals of American governance. It is probably the most detrimental as well. Historically, the economic repercussions of shutdowns tend to be temporary, swiftly recovering once the government resumes operations. Nonetheless, the 36-day funding hiatus that commenced on October 1 is inflicting a considerable – though transient – setback on the globe’s largest economy. Millions of Americans are currently not receiving the food stamp benefits essential for sustaining their families. Approximately 1.4 million federal employees remain unpaid, despite the fact that a significant number continue to fulfill their duties. Investors and policymakers find themselves in a state of uncertainty regarding the US economy, as the dissemination of government data has come to a halt. “The current shutdown looks likely to have the greatest economic impact of any shutdown on record,” Alec Phillips noted in a recent report.
According to economists, the prolonged duration of the US government shutdown correlates with a rising spectrum of economic risks. As the shutdown persists, here’s how it can adversely affect the economy. Even if the shutdown concludes by next week, it is expected to decelerate the growth of real gross domestic product — the most comprehensive indicator of economic output, excluding inflation — by 1.15 percentage points in the fourth quarter, as per Goldman Sachs. The nonpartisan Congressional Budget Office projects that the shutdown will lead to a reduction in GDP by one to two percentage points. “Those effects will intensify the longer the shutdown lasts,” the source stated in a letter last week. While “most of that decline” is expected to be recouped over time, the source projects that between $7 billion and $14 billion will be irretrievably lost as a result of the shutdown. Goldman Sachs is now projecting a subdued fourth-quarter GDP growth of merely 1%. Such a development would indicate a notable deceleration from the anticipated growth rates of 3% or even 4% for the third quarter. Phillips noted that the ongoing shutdown is anticipated to lead to a “much greater hit to growth than any prior shutdown” due to its unprecedented duration and broader scope compared to earlier shutdowns.
The 2018-2019 shutdown, which held the record for the longest duration at 35 days, was a partial shutdown that affected merely 10% of government expenditure, as per indications. The 2025 shutdown has completely disrupted all appropriations. The ongoing shutdown coincides with an unfavorable period, as noted by David Kelly, chief global strategist at JPMorgan Asset Management: “The economy was already going to slow down, and this just made it worse.” Kelly identified several factors contributing to the deceleration of the economy in the fourth quarter, such as historically elevated tariffs, reduced immigration levels, and the resumption of student debt repayments. He remarked that it is “shocking” to observe “how much public pain (Democrats and Republicans) are willing to inflict just to achieve a political advantage.” On Saturday, a significant number of SNAP recipients began to experience interruptions in their benefits as a result of the government shutdown. The exact economic impact of the shutdown is challenging to quantify, partly due to the information void created by the shutdown itself. “We are navigating without clear visibility in this economy,” Kelly stated.
During the ongoing shutdown, the federal government has released only one significant economic report: the September consumer price index, which serves as the final data point necessary to calculate annual cost of living adjustments for Social Security benefits. Additional data releases, encompassing the crucial monthly jobs report and the Federal Reserve’s preferred inflation measure, along with significant insights into consumer spending, have been deprioritized. This represents a significant departure from the 2018-2019 shutdown, during which the Bureau of Labor Statistics continued to receive funding. This enabled the agency to persist in the collection and dissemination of essential economic data. Policymakers find themselves compelled to make decisions amidst constraints of limited information. Last week marked a historic moment as the Federal Reserve made its decision on interest rates independent of the monthly jobs report for the first time. Should the government shutdown persist in constraining the visibility of Fed officials, it may lead the central bank to reconsider a rate cut during the December policy meeting. “What actions should one take when navigating through foggy driving conditions? You slow down,” remarked Fed Chair Jerome Powell during a press conference last week. “I’m not committing to that; I’m merely suggesting that it’s certainly a possibility that one might say, ‘We really can’t see, so let’s slow down.’”
Even after the government reopens, the integrity of economic data may be compromised due to the BLS’s inability to carry out essential surveys of businesses and consumers during the shutdown period. The shutdown is expected to elevate the unemployment rate for October, as the Bureau of Labor Statistics generally classifies furloughed workers as unemployed unless they secure alternative employment. Goldman Sachs anticipates that the impact of the shutdown will “more than reverse” in the first quarter, contributing an increase of 1.3 percentage points to GDP as furloughed workers return and postponed federal spending rebounds. The bank anticipates that this reversal will elevate first-quarter GDP growth to a robust rate of 3.1%. The projection says that a portion of the output lost as a result of employee furloughs would be irretrievably lost, resulting in an economic cost of up to 14 billion during an eight-week shutdown. Certainly, the projections for a recovery depend on a crucial aspect of shutdowns: Federal employees receive compensation once the government resumes operations. Nonetheless, President Donald Trump has raised concerns regarding the policy of compensating furloughed workers – despite having enacted legislation during his initial term that has been broadly understood as ensuring back pay for those affected by furloughs. The White House on Tuesday refrained from guaranteeing compensation for furloughed workers following the shutdown, heightening concerns about potential long-term economic repercussions.