Our nation’s current government shutdown is approaching an unfortunate landmark, as it has already become the longest in American history. As you surely know by now, the shutdown started on October 1. It has now broken the old record of 35 days set during the 2018-2019 partial shutdown. The current shutdown has devastating impacts as it is. Nearly 1.4 million federal employees are suffering the consequences at this moment, as they’ve already missed one paycheck. Unsurprisingly, this unprecedented situation will have a tremendous impact on our economy. Millions of Americans who rely on government services and benefits will be hit hard.
According to Alec Phillips, chief political economist at Goldman Sachs, “The current shutdown looks likely to have the greatest economic impact of any shutdown on record.” The impact of this ridiculous legislative stalemate goes far beyond the effect on unpaid workers. It’s stopped essential information and services. Millions of Americans are unable to access the food stamp benefits their families urgently require. At the same time, essential economic data is frozen, leaving investors and policy makers blind about the economy’s current condition.
Economic Consequences of the Shutdown
The 36-day government-funding lapse—including the workload it created—has taken a considerable toll on the world’s largest economy. Analysts predict that this shutdown will negatively impact the growth of real gross domestic product (GDP). Their latest prediction is for a 1.15 percentage point slowdown in Q4. This on top of an economy already set to slow down increases worries about the future growth prospects.
The Federal Reserve has similarly been hard hit by the shutdown. For the first time in history, it made a monetary policy decision on interest rates without the advantage of knowing what was in the following month’s jobs report. The lack of critical economic data restricts the Fed’s ability to make informed decisions. Taken together, banks and other interested financial institutions are stuck in a fog of uncertainty.
“We are flying blind in this economy” – David Kelly
The alternative economic indicators are still not being published. Federal authorities did manage to get out one big economic report: the September consumer price index (CPI). The choice that economists have to make is profound. The absence of granular data means that they can’t fully understand the long-term impact the shutdown has had on their economic health.
Impact on Federal Workers and Families
The effects of this shutdown are particularly harsh for federal employees who have been furloughed or are working without pay. As the number balloons to 1.4 million, most can’t afford to make their payments. In turn, there is increasing alarm at how these fiscal pressures will cascade through state and local economies.
Furloughed workers are generally counted as unemployed, unless they gain employment elsewhere in the meantime. As a result, October’s unemployment rate will likely show an uptick as a result of these furloughs. The impact The shutdown has thrown many families into a cycle of uncertainty and financial turmoil, particularly for those who rely on secure government jobs.
“Shocking” to see “how much public pain (Democrats and Republicans) are willing to inflict just to get a political gain” – David Kelly
This sentiment resonates with many who observe the political landscape surrounding the shutdown, where both parties appear willing to endure extensive public suffering in pursuit of their objectives. Frustration federal employees are feeling from unpaid bills and interrupted services is only further aggravating frustrations with the transition. They’re growing more alarmed by lawmakers’ seeming lack of urgency to get the deadlock sorted.
The Broader Context and Future Outlook
The current shutdown, unlike most other recent ones, stops all appropriations cold. That’s a major shift from past shutdowns, such as the 2018-2019 episode, which only affected 10% of federal outlays. This new reality drives the federal government’s operations beyond a critical tipping point. It is a poignant reminder of dire consequences even under normal political adversity.
Financial experts, including the U.S. Financial Accountability Office, are trying to determine the long-term ramifications. They add that the terrible information blackout created by the shutdown means that the precise economic damage is hard to determine. All sectors will surely continue to experience the impact well past when funding eventually comes back given the lost confidence in the reliability of government.
“What do you do if you’re driving in the fog? You slow down” – Fed Chair Jerome Powell
The Federal Reserve’s recent trial by fire illustrating the need for this. Without trustworthy data, decision making is by default much more conservative and on-guard.