Background on the Shutdown and Its Key Players
The ongoing US government shutdown, resulting from a standoff between Republicans and Democrats in Congress over funding, may affect fourth-quarter economic growth. However, most of the lost production is expected to be recovered once normal operations resume.
Economists’ Estimates and Areas of Impact
Economists estimate that the shutdown is reducing between 0.1 and 0.2 percentage points of annualized GDP growth per week, once inflation adjustments are made. The impact of the three-week shutdown will primarily be felt in consumer spending and federal worker productivity loss.
- Approximately 700,000 federal workers have been furloughed without pay.
- Another 700,000 federal workers are working without pay, potentially forcing households to postpone expenditures.
- Many federal workers will not receive their first full paycheck until Friday.
- The White House has suggested that federal workers do not have guaranteed retroactive pay once the government reopens, and the Trump administration has laid off some temporary workers.
- Government contractors have also been sent home and typically do not receive retroactive pay.
Expert Opinions and Long-term Consequences
“There will be an impact on the economy,” said Gregory Daco, chief economist at EY-Parthenon. “It won’t push the economy into a recession, but the longer it drags on, the more permanent the losses will be for federal workers who have had to cut back on spending because they haven’t been paid or, even if they expect retroactive pay, are being more cautious with their finances.”
Historical Context and Current Consequences
Congress occasionally approves annual funding for certain federal departments, as it did before the 2018-2019 shutdown. This time, however, none of the departments have received funding, leading to consequences.
- Active-duty military personnel received their salaries last week, but some reportedly were underpaid.
- Several states, including New York and Texas, have warned that Supplemental Nutrition Assistance Program (SNAP) benefits, which low-income households rely on to supplement their grocery spending, may not be available if the shutdown extends until November.
Key Questions and Answers
- What is the potential impact on the US economy due to the government shutdown? Economists estimate that the shutdown could reduce annualized GDP growth by 0.1 to 0.2 percentage points per week, primarily affecting consumer spending and federal worker productivity.
- Who are the key players in this situation? The standoff is between Republicans and Democrats in Congress over funding.
- What are the consequences for federal workers? Approximately 1.4 million federal workers have been furloughed or working without pay, which may force them to postpone expenditures and cut back on spending.
- How might this situation affect low-income households? States like New York and Texas have warned that SNAP benefits may not be available if the shutdown extends until November, impacting low-income households’ grocery spending.
