In brief
The current federal government shutdown is the longest in U.S. history, affecting around 1.25 million workers who have not been paid since October 1. Flight cancellations are widespread, and the overall economic toll is projected to be severe, with $11 billion in activity permanently lost. Experts predict the shutdown will reduce fourth-quarter GDP growth by 1.5 percentage points, while restoring growth in the following quarter as government operations resume.
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 workers have gone without pay since October 1. Thousands of flights have been canceled, a situation projected to continue even as Congress moves towards reopening the government. The economic impact extends beyond travel disruptions; government contract awards have slowed significantly, and many food aid recipients are experiencing interruptions in benefits.
Although most lost economic activity is expected to be recovered when the government reopens—thanks to back pay for federal workers—many canceled flights won't be rescheduled, and some missed dining experiences or postponed purchases may never occur. Short-lived shutdowns usually leave little trace in economic data, but this one will be notably impactful due to its unprecedented length and the extensive disruptions it has caused, stated Gregory Daco, chief economist at EY.
The Congressional Budget Office estimates that a six-week shutdown would lower GDP growth for the fourth quarter by 1.5 percentage points, cutting growth roughly in half compared to the previous quarter. While a rebound is anticipated for the first quarter of next year, with an increase of 2.2 percentage points in growth, an estimated $11 billion in economic activity may be permanently lost.
Adding to the ongoing economic difficulties, which include sluggish hiring and high inflation, the shutdown has exacerbated conditions that many businesses are already facing, creating additional uncertainty. Despite the turmoil, economists do not generally predict an impending recession.
During the shutdown, about 650,000 federal workers have not been on the job, likely raising the unemployment rate by 0.4 percentage points in October. By mid-November, it is estimated that federal workers will have missed approximately $16 billion in wages, reducing spending at retailers, restaurants, and potentially influencing holiday travel.
The shutdown has also led to significant interruptions in the Federal Aviation Administration (FAA), forcing airlines to cancel thousands of flights to manage workloads among beleaguered air traffic controllers. Travel spending is projected to plummet, costing the industry billions. Overall, the ongoing disruption in federal operations is underscoring its adverse effects on the broader economy.
