Government Shutdown Nears End, But Economy Faces $11 Billion Loss

The longest federal government shutdown in U.S. history is approaching a resolution, though economists warn of a lasting negative impact on the nation’s economy.

Approximately 1.25 million federal workers have been unpaid since October 1st, contributing to thousands of flight cancellations and disruptions to government contract awards and food aid programs. The Congressional Budget Office estimates a six-week shutdown will reduce fourth-quarter economic growth by 1.5 percentage points, and ultimately result in $11 billion in permanently lost economic activity. This comes at a time when the U.S. economy is already navigating sluggish hiring, persistent inflation, and trade-related uncertainties.

The shutdown is expected to temporarily boost first-quarter growth next year by 2.2 percentage points as federal workers receive back pay, but some economic activity is irretrievable. “Short-lived shutdowns are usually invisible in the data, but this one will leave a lasting mark,” said Gregory Daco, chief economist at EY, “both because of its record length and the growing disruptions to welfare programs and travel.” The disruption to the flow of economic data may also impact future decisions by the Federal Reserve regarding interest rate adjustments, as Chair Jerome Powell noted the need to “slow down” when “driving in the fog.”

Beyond the national level, states with a high concentration of federal employees – including Maryland, New Mexico, Oklahoma, and Alaska – are experiencing localized economic strain. The impact extends to federal contractors, potentially affecting as many as 5.2 million workers who are not guaranteed back pay. For more information on the economic impact of government shutdowns, see the Congressional Budget Office’s analysis.

Officials anticipate a vote on a deal to reopen the government and restore funding, including SNAP benefits, in the coming days.