The federal government shutdown that has extended into all of October is set to become the longest in U.S. history. As the impasse continues, it threatens to exacerbate challenges for many Americans, particularly those already struggling at the margins of society. At the same time, tens of millions of Americans are experiencing deepened hunger and stress. This is mainly because funding for important safety net programs, including the Supplemental Nutrition Assistance Program (SNAP), is in danger. The possible ramifications go further than personal pain; it would threaten to upend regional economies, including many rural communities.
A government shutdown has already wreaked havoc on numerous government services and funding streams. As a result, retail and supply chain operations are severely disrupted, potentially increasing costs to consumers. Economists say the detrimental impacts of that shutdown are escalating by the minute. That leads to a dangerous cycle of collateral damage that threatens to reverberate throughout the economy.
Impact on Consumer Confidence and Spending
With consumer spending making up about two-thirds of all U.S. economic activity, it is the main engine of growth. Recent data shows consumers’ confidence has dropped to its lowest level since April. Perhaps the most alarming part is the deep decline in sentiment. At worst, it would choke off consumer spending at a time we can least afford an economic downturn.
Mark Zandi, chief economist at Moody’s Analytics, expressed concern over the current economic climate:
“The economy is fragile and, therefore, something like a government shutdown could become a bigger problem a lot faster than people might think.”
Beyond that, the job market was already stretched thin even before the closure. The Federal Reserve has shifted its focus to the weak job market rather than inflation or financial conditions as it considers future economic policies. Against this backdrop, it can’t be overstated that all these red flags are being waved while consumer confidence is still sinking.
Diane Swonk, chief economist at KPMG, highlighted the interconnectedness of these issues:
“It just adds insult to injury on an economy that was already showing some cracks.”
Risks to Essential Programs and Employment
As the shutdown continues, we are risking hard-earned safety net programs, especially impacting those families who depend on Head Start to provide them with vital services. Over 65,000 children and families in 41 states and Puerto Rico are at risk of losing access to these critical programs. Open enrollment for health insurance begins November 1. Over 22 million Americans who rely on the federal health insurance marketplace will feel the pinch, with average premiums expected to increase by 26%.
This brings us to yet another big economic boogeyman – child care disruptions. Research shows that these kinds of disruptions are detrimental to labor force participation, productivity growth, and economic growth itself. Parents are tired of playing hide and seek with affordable child care. Their fight only makes them less able to re-enter the workforce, further straining our already stretched-thin economy.
The political landscape makes a return to normalcy inside and outside the Congress seemingly impossible just now. Democrats are advocating for a short-term funding package that includes enhanced assistance extensions, while Republicans refuse to negotiate until the government reopens. This impasse threatens to pull the shutdown fight beyond Thanksgiving, likely inflicting more permanent damage to lives and our economy.
“At some point, things start to break because they’re just not getting done.”
Political Division and Long-Term Consequences
Each day that goes by without a resolution raises the chances of a major economic catastrophe. The cumulative effects of the shutdown may have a more profound impact, shifting economic activity in dramatic ways. It won’t just be saved and postponed, it will be retrofitted. Swonk compared the scenario to a “snowball going down a hill,” picking up speed and size with every day that goes by.
Should the impasse persist, Zandi warns of severe consequences:
“However, tariffs are projected to dampen consumer spending before year’s end, and a prolonged shutdown could further erode consumer confidence.”
As the days pass without resolution, the likelihood of a significant economic downturn increases. The cumulative effects of the shutdown could create a scenario in which economic activity is not merely delayed but fundamentally altered. Swonk likened the situation to a “snowball rolling down a hill,” gaining momentum and mass with each passing day.