WASHINGTON (AP) — The longest federal government shutdown in U.S. history appears to be nearing an end, but not without leaving a mark on an already struggling economy.
Approximately 1.25 million federal employees have not been paid since October 1. Thousands of flights have been canceled, and this trend is expected to continue. Continue this week too Even as Congress moves to reopen the government. Government contract signings have slowed, and some 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. But some canceled flights will not be reused, missed restaurant meals will not be made up, and some postponed purchases will not end up being made at all.
“Short-term closures typically don’t show up in the data, but this one will leave a lasting mark, both because of its record length and because of the increased disruption to benefits and travel,” said Gregory Daco, chief economist at accounting giant EY.
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 halved 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.
The current government shutdown adds to existing challenges for the economy, including: employment slumpstubbornly rising inflationand President Donald Trump’s tariffs are creating uncertainty for many businesses. Still, few economists predict a recession.
With about 650,000 federal employees not working during the government shutdown, the unemployment rate could rise by about 0.4 percentage point to 4.7% in October from 4.3% in August, when the last report was released. Once the government reopens, all of these workers will be counted as employed.
Here’s how the government shutdown is impacting the economy.
missed a paycheck
Overall, CBO estimates that federal workers will miss out on about $16 billion in wages by mid-November. 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 made the situation even worse in the Washington, D.C., area. economic hardshipthe unemployment rate was already at 6% before the government shutdown due to job losses caused by President Trump’s federal workforce cuts this spring. 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 could reach 5.2 million people, and there is no guarantee they will be repaid when the government shutdown ends.
flight disruption
Airlines had scrapped more than 2,000 flights by Monday evening after canceling 5,500 flights since Friday under orders from the Federal Aviation Administration 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 estimated that the grounding would reduce daily travel spending by $63 million, meaning a six-week standoff would cost the travel industry $2.6 billion.
Flight cancellations also mean less business for hotels, restaurants and taxi drivers. Additionally, federal employees have already canceled future trips and may not be able to reschedule them even if the government reopens, according to Tourism Economics.
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 its lowest level in three years and is close to an all-time low. Research by University of Michiganreported on Friday that pessimism about personal finances and the expected economic situation is weighing heavily 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. In some states, I managed to pay the full amount of benefits. However, the Trump administration is still fighting the issue in court.
The deal currently being considered by Congress to reopen the government includes full payment of SNAP benefits.
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 if the government reopens, some data will still 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.
Powell said a rate cut in December was not a “foregone conclusion,” adding that a lack of data could lead to the Fed deciding not to cut rates at its next meeting on December 9-10. Fewer interest rate cuts could weigh on the economy in coming months by discouraging borrowing and spending.
