The U.S. government shutdown has become the longest in history, and there are no signs of a solution in the short term. The economic losses it has caused are intensifying.
The current government shutdown has lasted for 36 days, surpassing the record set in early 2019 during President Trump’s first term. Analysts estimate that for each week of the shutdown, the US economy loses between 10 billion and 30 billion US dollars, with losses reaching as high as 15 billion US dollars in some days.
In the past, the shocks to economic growth were temporary. Employees who were temporarily laid off would receive back pay, and the federal government would make up for the halted spending once the economy reopened.
Economists say the damage caused by this government shutdown could be greater, not only because it has lasted longer. Compared with seven years ago, the US economy is more vulnerable and many Americans are worried about inflation and job prospects. Moreover, unlike the government shutdowns in 2018-2019, the impact of this shutdown is not limited to federal employees not getting paid, but also includes millions of Americans losing all access to food assistance during the upcoming holiday season.
Jonathan Miller, a senior US economist at Barclays Bank, said: “Historically, government shutdowns usually do not have catastrophic consequences. But this time the situation may be different.”
During the government shutdown, the Trump administration attempted to fire thousands of federal employees and suggested that not all of the approximately 650,000 workers who were furloughed should receive back pay. Although these measures may ultimately fail, they undoubtedly increased the uncertainty about the extent of the economic recovery.
According to the Congressional Budget Office, the duration of the government shutdown varies, which could lead to a decline in the fourth-quarter economic growth rate by as much as 2 percentage points. The office also stated that if the deadlock persists until the week of Thanksgiving, about 14 billion US dollars in losses will be irrecoverable.
These impacts have already begun to affect the private sector, with government contractors idling and businesses dependent on tourists taking a heavy blow due to the closure of some parks and museums. Delays have occurred at some of the nation’s busiest airports due to a shortage of air traffic controllers, who also fall into the category of essential workers who must work but are not getting paid.
It is estimated that federal government spending on goods and services was suspended by $24 billion in the first month of the shutdown. Now in its sixth week, the shutdown’s ripple effects are reaching contractors and suppliers who were expecting to receive these funds.
Bernard Yaros, chief US economist at Oxford Economics, said: “This increases the risk that these contractors will have to put their employees on furlough, cut their wages, and even lay them off in particularly bad financial circumstances.”
Thousands of private enterprises that rely on loans from the US Small Business Administration (SBA) are facing a shortage of funds. As of October 21, the SBA estimated that the government shutdown has frozen a total of $2.5 billion in loans for 4,800 small businesses – funds that are typically used for daily operations, including daily expenses and expansion costs.
Neil Bradley, executive vice president of the U.S. Chamber of Commerce, said in a statement, “The impact of the pandemic on businesses is accumulating and affecting their current and future development. Businesses need government support to operate normally.”
The core of the debate in Washington is the subsidy policy passed by the Democratic Party in 2021, which has reduced the premiums of over 20 million Americans who obtain health insurance through the Affordable Care Act market. According to the health policy research organization KFF, these subsidies, which are set to expire at the end of the year, could cause average premiums to more than double.
Mark Zandi, chief economist at Moody’s Analytics, said, “If the shutdown persists beyond Thanksgiving and hits consumer confidence and spending during the crucial Christmas shopping season, the economic losses will be further exacerbated.”
