WASHINGTON (AP) — The six-week government shutdown that ended late Wednesday will be another drag on an economy already facing numerous challenges, but the full impact will take months to measure.
Approximately 1.25 million federal employees have not been paid since October 1st. About 10,000 flights have been canceled since last week, and officials say the disruption will continue even as air traffic controllers return to work. Government contracting has slowed, and many food aid recipients are Suspension of benefits.
Most of the lost economic activity will be recovered once the government reopens, as federal workers will receive back pay. However, some canceled flights will not be rebooked, many canceled restaurant reservations will not be rebooked, and some deferred purchases will not be fulfilled.
The government shutdown also cut off the flow of economic data on employment, inflation and consumer spending, potentially forcing the Federal Reserve to forego an expected interest rate cut at its next meeting in December.
“The shutdown has had a negative impact on the U.S. economy and the collection of important data on things like employment and prices,” said Heather Long, chief economist at Navy Federal Credit Union.
Congressional Budget Office Estimation The six-week closure is expected to reduce growth by about 1.5 percentage points in the fourth quarter of this year. If that happens, the growth rate will be cut by about half from the third quarter. CBO expects the reopening of the economy to boost growth by 2.2 percentage points in the first quarter of next year, but will permanently eliminate about $11 billion in economic activity.
The longest previous government shutdown lasted 35 days in 2018-2019, but the shutdown was only partial because many government agencies were fully funded. According to the CBO, the economy was hit by only about 0.02% of GDP. I said that time.
This year’s government shutdown adds to existing challenges for the economy. employment slumpstubbornly rising inflationand President Donald Trump’s tariffs are creating uncertainty for many businesses. Still, few economists predict a recession.
Here’s how the government shutdown will affect the economy.
missed a paycheck
Overall, CBO estimates that federal employees have lost about $16 billion in wages. This means less spending in stores and restaurants, and perhaps less holiday travel. Large purchases will probably be postponed and the overall economy will slow down.
President Trump threatened not to pay back wages during the government shutdown, but a deal agreed to by Congress will make up for lost wages once the government reopens.
The government shutdown further worsened the situation in the Washington, D.C., area. economic hardshipafter President Trump cut the federal workforce this spring, the unemployment rate was already 6% before the shutdown. The Washington, D.C., area, which includes the suburbs of Virginia and Maryland, has the highest concentration of federal employees, most of whom live and work outside the nation’s capital.
Federal employees make up about 5.5% of Maryland’s workforce, according to the Bipartisan Policy Center. But they also make up 2.9% of workers in New Mexico, 2.6% of workers in Oklahoma, and 3.8% of workers in Alaska.
Then there are federal contractors. Bernard Jarosz, an economist at Oxford Economics, estimates that the total number could reach 5.2 million people, and there is no guarantee that they will be repaid when the shutdown ends.
interest rate reduction
government shutdown Cut off the flow of economic data It’s about unemployment, inflation, and retail spending, which the Federal Reserve relies on to monitor the health of the economy. Even when the government reopens, some data may not be reported and other data may be delayed. As a result, the Fed may not cut interest rates for a third time at its December meeting, which was widely expected before the shutdown.
“What do you do if you’re driving in fog? Slow down,” Federal Reserve Chairman Jerome Powell said in a speech. press conference Late last month.
Powell said the Fed’s rate-setting committee is deeply divided over whether to lower key interest rates, in part because the health of the economy is currently unusually cloudy. The government is Missed the monthly employment report twice. And October inflation data, due to be released on Thursday, is unlikely to be released.
Boston Fed President Susan Collins said Wednesday that a lack of economic data is one reason she is “hesitant” to support another rate cut next month. Mr. Collins has voting rights on the Fed’s rate-setting committee.
Fewer interest rate cuts could weigh on the economy in coming months by discouraging borrowing and spending.
flight disruption
Airlines have canceled more than 10,000 flights under orders from the Federal Aviation Administration, which is trying to ease the burden on overworked air traffic controllers who have not been paid twice.
Even before the flight cancellations, economic consulting firm Tourism Economics had estimated that the grounding would reduce travel spending by $63 million per day. In other words, the six-week stalemate cost the travel industry $2.6 billion.
consumer psychology
The government shutdown has worsened Americans’ outlook for the overall economy. Weaker consumer sentiment could reduce spending over time and slow growth, but in recent years Americans have continued to shop even when the outlook has gotten grimmer.
Consumer sentiment has fallen to a three-year low, close to the all-time low hit last week. Research by University of Michigana pessimistic view of personal finances and the expected business situation is weighing on Americans.
The November survey showed that the Consumer Sentiment Index was 50.4, a shocking 6.2% month-on-month drop and a nearly 30% drop year-on-year.
federal spending
The shutdown hasn’t cut off all federal spending, but it has cut back on equipment purchases and halted the issuance of new contracts.
Yaros estimates that it is at risk of losing approximately $800 million in new business each day during the shutdown.
“The federal award spigot has all but stopped at the Department of Defense, NASA, and the Department of Homeland Security,” Yaros wrote.
Advantages of Snap
The government shutdown will delay payments of $8 billion in monthly SNAP food assistance to 42 million recipients in November, causing significant economic disruption for many households and likely reducing spending.
That’s not yet Not sure how quickly all benefits will be achieved Payments are expected to be made this month, but the government has said payments could be made as early as Thursday in many states.
