The economic impact of past government shutdowns has been clear. The economy loses activity for a few weeks but then regains activity after the government reopens. The net costs are basically zero.
This time the calculation may not be quite so harmless.
With the standoff in Washington now in its fourth week with no end in sight, it looks like this could become one of America's longest funding shortfalls. During the previous record period, a 34-day shutdown in 2018, Congress passed enough budget bills to secure a larger share of government funding. This time none were passed.
And the White House is trying to lay off thousands of people and is threatening to withhold wages from furloughed workers, despite a 2019 law requiring those workers to be paid. “That would obviously have a larger macroeconomic impact,” said Michael Zdinak, director of the U.S. economic team at S&P Global Market Intelligence.
Then there are the services these workers don't provide, including national park tours and new drug reviews that support the trade. For many companies, the timing couldn't be worse as the holiday season approaches and economic uncertainty is already high.
“If you're worried about the potential for these indirect impacts, they're only going to increase the longer the shutdown lasts,” Mr. Zdinak said.
Economists expect the shutdown to reduce annual economic output growth by 0.1 to 0.2 percentage points for each week it lasts. According to Oxford Economics, that amounts to between $7.6 billion and $15.2 billion per week, based on the hours government employees don't work. According to the Bureau of Economic Analysis, the 2018 shutdown reduced annual growth by a little less than 0.1 percentage points per week.
This estimate does not capture the way federal services support economic activity in other sectors, where the effect could be limited but profound. Consider visa processing. Much of this is being carried out by contractors who have been told to stop work on October 1st. Unlike government employees, they will not receive any money back after the shutdown ends.
Brandon Muniz owns an information technology provider in Maryland, HeiTech Services, that relies on federal contracts. He has already suffered a loss of business this year due to government cost-cutting, and in recent weeks he has had to cut hours for employees who won't be able to review applications for green cards and employment-based visas until the government reopens. Mr. Muniz had to lay off 15 employees and furlough another 25 this year because of the closure. He worries about getting them back when they find other jobs and keeping the company running in the meantime.
“All of our indirect costs for our headquarters team, the facilities and the vehicles that they have, we still have to pay,” Mr. Muniz said. “Those are things we take into account when we write a contract proposal, but it’s very difficult to factor in something like a closure.”
The individuals and companies HeiTech serves – such as farmers, seasonal attraction operators and seafood processors – are struggling with late visa applications.
Small businesses that rely on one or two foreign workers with certain skills are in limbo, said Mark Neuberger, an attorney at Foley & Lardner in Miami who helps clients with labor issues. “Even a short shutdown leaves the plants paralyzed for months, and they have to clean up the mess from back then,” Mr. Neuberger said.
The federal government also guarantees a significant share of credit markets through agencies whose work has been significantly curtailed, including the Small Business Administration and the Department of Agriculture.
The pause in federal loan processing poses the biggest barrier to low-income borrowers who would qualify for a mortgage backed by the Department of Agriculture's rural program. But even people approved for private mortgages in disaster-prone areas are being tripped up because they don't have access to the National Flood Insurance Program.
For farms and small businesses, October is a critical month for borrowing. Some are paying their taxes after receiving a six-month extension starting in the spring. Others are trying to stock up on supplies or purchase equipment for the upcoming planting season.
Federal agencies generally offer more favorable terms than private lenders, and when these are not available, borrowers may turn to more expensive options.
“They will try not to invest money or hire more people right now,” said Rohit Arora, the chief executive of Biz2Credit, an online lending platform. “If this doesn’t solve the problem, credit cards will come first, but there will be a subset of customers who will be forced to take out loans at much higher costs.”
The timing of the shutdown is problematic for another reason: monetary policy makers are groping ahead without important labor and inflation data from the statistical offices.
The economy is already nearing a standstill, battered by tariffs and aggressive immigration enforcement. The lack of signs of a more severe downturn – or acceleration – could lead officials to make a decision on interest rates that they may regret as the data becomes clearer.
Federal data also flows into smaller decisions. The Department of Agriculture produces weekly reports on production and global demand that help farmers decide where to market their crops and what to grow next year.
“This is not a good time for a lack of information,” said Todd Davis, chief economist for the Indiana Farm Bureau. “Farmers are trying to make business plans and time their production, whether to sell it at harvest or make decisions about storage and transportation later this year or early next year to get a higher price.”
Janet Lowry, 75, a former professor, was furloughed from her part-time job as a field representative for the Census Bureau in southwest Indiana, a $15-an-hour job that gave her extra income to supplement her savings. She said the lost data was even more important to her than the missed paycheck.
One program she is responsible for is the monthly construction survey, which calls builders in Fort Smith, Arkansas, to find out how many housing units they are adding and when they will be completed.
“That's used by all sorts of people to determine what's going on in the economy in that area, the need for new equipment and the amount of housing available and things like that,” Ms. Lowry said. “October is screwed up.”
Like the federal workforce cuts already imposed by President Trump, the pause in government operations is most clearly felt in the capital region. Virginia, which has already lost 10,000 federal jobs this year, is forecasting an overall employment decline outside of the pandemic in 2025 for the first time since the Great Recession.
Lost jobs and lost wages are driving more people to seek food assistance, according to the Capital Area Food Bank, which this week opened additional locations specifically for federal workers who are not receiving wages. Rosie Allen-Herring, United Way's executive director in the region, said there was another problem: Federal employees had donated generously to the organization in the past as part of the joint federal campaign. The time when they would normally decide what to donate next year is upon us.
“The contributions we counted on to help those already in need are at risk and have been cut,” Ms Allen-Herring said. “Now what do you do when someone who used to be your donor becomes a customer?”
There are many other ways that shutting down government services could dampen economic activity. Permits are not issued, research grants are not processed, construction contracts are not executed, products are not inspected. As ships pile up in ports due to a lack of staff at customs offices, perishable goods could spoil and airline delays increase.
But some of the more serious impacts come from risks that go unmanaged. It's hurricane season, for example, and small disasters can become larger ones if the National Weather Service can't warn communities of a storm and the Federal Emergency Management Agency can't respond at full force.
David Bernstein, a consultant at a firm called BSI that helps companies plan for emergencies, said companies could face disruptions beyond the variables they typically track.
“That sphere of influence has to keep getting bigger because you can’t control all the other things that happen,” Bernstein said. “And you’ll start to see these cascading effects.”