The ongoing government shutdown is projected to have significant economic repercussions. Estimates indicate that each week of the shutdown could cost the economy $7 billion and lower GDP growth by 0.1 percentage points, according to Gregory Daco, chief economist at EY-Parthenon. These costs primarily arise from reduced federal employee pay, delayed procurement processes, and decreased consumer demand.
Historical Context of Government Shutdowns
The shutdown’s potential impact echoes the longest government shutdown in U.S. history, which lasted 34 days from December 2018 to January 2019. This previous shutdown cost an estimated $11 billion, as reported by the Congressional Budget Office (CBO). During this period, real GDP was negatively affected, with a $3 billion loss in the fourth quarter of 2018.
Key Economic Consequences
The CBO also noted that the first quarter of 2019 experienced a shortfall of $8 billion in real GDP due to the shutdown’s effects. Consumer confidence also took a hit; the 2019 shutdown marked the largest decline in the University of Michigan’s Consumer Sentiment Index since 2012.
- Estimated cost of the current shutdown: $7 billion per week
- Projected GDP growth reduction: 0.1 percentage points
- Economic loss from the 2018-2019 shutdown: $11 billion
- Real GDP decline in Q4 2018: $3 billion
- Real GDP decline in Q1 2019: $8 billion
Myriad Costs of Shutdowns
Shutdowns impose additional costs beyond lost wages. These include administrative expenses related to establishing contingency plans and lost revenue from federal services such as national parks and various permits. Federal contractors also often face higher premiums during these periods.
Under current federal law, furloughed employees will receive pay once the government reopens. A recent CBO analysis highlights that taxpayers will incur around $400 million a day during the shutdown due to these wage payments.
Previous Shutdown Financial Summary
According to a Senate Committee report, the last three shutdowns from 2013, 2018, and 2019 collectively cost taxpayers nearly $4 billion. This figure includes:
- $3.7 billion in back pay to furloughed federal workers
- $338 million in administrative expenses, lost revenue, and late fees
Current Shutdown Factors and Predictions
This shutdown may have different implications from past ones. Officials, including President Trump and OMB Director Russell Vought, have indicated that layoffs could occur if the shutdown persists. Vought has already initiated restrictions on federal funding for various projects, with an emphasis on reducing expenditures in states that did not favor the Republican administration.
Trump mentioned potential long-term impacts of the shutdown on federal employee numbers and programs supported by Democrats. He hinted that the administration could utilize this time to implement changes that would be difficult to reverse later.
