“We can’t close our homes until the government reopens” How the government shutdown is impacting Americans and the American economy.
President Trump says he has the ‘right’ to cut welfare programs
President Donald Trump talks about the government shutdown and the No Kings protests with Maria Bartiromo on Fox Business News.
Even if debate stalls in Congress, much of the government’s economic machinery continues to operate.
Social Security benefits will continue to be paid, student loan payments will be collected, and essential employees will continue to work even if they are not being paid. The Federal Reserve continues to operate, the U.S. Treasury still service debts, and ports and the U.S. Postal Service remain open.
Historically, shutdowns have not had a large and lasting impact on the economy. They have had little impact on markets or Treasury yields, according to a recent report from Trust Advisory Services. But the longer the shutdown lasts, the greater the risk of negative consequences.
And some forecasters have warned that the latest shutdown could be more damaging than some previous ones, especially given President Donald Trump’s threat that some furloughed workers won’t receive back pay or could be fired. However, these proposed layoffs are currently being challenged in court.
“The reason the impact of the shutdown is minimal is because all the spending comes back…but if you lay people off or don’t give back their salaries, that money is gone forever,” said Gbenga Ajilore, chief economist at the Center on Budget and Policy Priorities. “There are a lot of things that usually don’t happen during a shutdown, but this time they could and will have a greater negative impact.”
I missed out on SNAP benefits and my paycheck is coming soon.
So far, Americans have been able to rely on the Supplemental Nutrition Assistance Program to buy food, but the U.S. Department of Agriculture has warned that if the government shutdown continues, there won’t be enough money to fully pay SNAP benefits for November.
October 24th will be the first day many federal employees will not receive their full paycheck. Bernard Jarosz, chief U.S. economist at Oxford Economics, estimates that the government shutdown could disrupt $800 million worth of federal contracts for each workday the shutdown continues.
“Some people may be able to rely on savings or credit to maintain their spending, but others may quickly find themselves in financial distress,” Jarosz said. “The biggest concern is the federal contract workforce, which is far more numerous than the civilian federal workforce.”
How much money will be lost in the government shutdown?
Before the closure, Oxford Economics warned that the financing failure could pose “some downside risk” to real GDP in the fourth quarter, but that “it will take longer than usual to leave a mark on the economy.”
More than three weeks have passed since the shutdown, and that risk may be starting to materialize. House Speaker Mike Johnson said on the 13th day that the United States is “heading toward one of the longest government shutdowns in American history.” The longest closure period was 35 days from December 22, 2018 to January 25, 2019.
After this historic partial shutdown, the Congressional Budget Office estimated that real GDP was 0.1% lower in the fourth quarter of 2018 and 0.2% lower in the first quarter of 2019 than it would have otherwise been. CBO estimated that the five-week expiration would cost the economy $11 billion, of which $3 billion would be lost forever.
Who does a government shutdown affect most?
Federal employees and contractors bear the brunt of the shutdown’s worst effects, including lost wages, work stoppages, and communication delays.
To reduce this impact on certain workers, President Trump announced that his administration has identified funds to pay military personnel. Department of Homeland Security employees, including Immigration and Customs Enforcement officers, will also be paid during the shutdown, Secretary Kristi Noem said.
The Public Employees Fair Treatment Act, which President Trump signed in 2019, guarantees that federal employees will not be paid once the government reopens. Elaine Kamarck, a senior fellow at the Brookings Institution, described Trump’s threat as a “negotiation tactic” and said if federal workers don’t receive the money they’re owed, “they’re going to get paid like hell.”
However, federal contractors are not guaranteed similar protections. They are also more likely to go to court if they can afford it, Kamarck said.
“The biggest hit will be small and medium-sized businesses that have government contracts, because they can’t afford all the court proceedings,” Kamarck added. “Contractors are going to be hurt, people who work for contractors are going to be hurt.”
How will the closure affect the local economy?
After months of layoffs and government efficiency cuts, local economies with large federal workforces, including Washington, D.C., Maryland and Virginia, are likely to suffer as lower foot traffic and lower consumer spending weigh on restaurants, stores and service providers.
Tourism in Washington, D.C., is also slowing as many popular tourist attractions remain closed, potentially further compounding losses for local businesses.
But federal employees are not limited to the nation’s capital. About 80% of them live outside the Washington, D.C., area, according to the Partnership for Public Service.
For a government shutdown to have an impact on the broader economy, economists say it would need to impact consumer confidence and spending, and economists are monitoring those indicators closely.
Jarosz said federal workers are already questioning whether they’ll receive the money they’re owed and may begin to wonder how secure their jobs are overall given the government’s mass layoffs.
“If that happens, there could be an even bigger setback in consumer spending, especially in federal locations across the country,” Yarosz added. “To date, the public has noticed and reacted negatively to the brinkmanship on Capitol Hill, so we will be monitoring the credibility data that is available.”
What kind of funding is typically affected during a shutdown?
When the funding expires, the government shuts down and lawmakers fail to pass spending bills or continuing resolutions. According to the Congressional Budget Office, the government shutdown primarily affects discretionary spending, which accounts for only a portion of the federal budget (about 27% in 2024).
The rest is considered mandatory spending, which funds programs such as Social Security, Medicare, and Medicaid. These programs typically continue to run during shutdown.
However, other government economic functions have slowed down due to lack of funds.
The Bureau of Labor Statistics’ employment report scheduled for Oct. 3 has been postponed, the bureau’s CPI report has also been postponed to Oct. 24, and the Social Security Administration’s release of its annual cost of living adjustment has also been postponed.
Transportation Security Administration and air traffic controllers are unpaid, leading to increased absenteeism and potential safety risks at a time when many Americans are preparing to travel for the holidays.
“There will come a time when a lot of workers, especially air traffic control and TSA workers, are not going to work or are calling in sick, and that’s going to lead to all sorts of delays,” Barnard said. “It’s going to take a certain amount of public outrage on both sides to realize that they can’t take this anymore.”
Loan operations of several government agencies have also been affected. Work will continue, but furloughed employees may cause delays in processing loan and mortgage applications.
Ashton Reed of Jackson, Missouri, is a first-time homebuyer who is processing a USDA loan during the government shutdown. He said he has reached out to his representatives in Congress but has not received a response to address his issue. He wants them to know that he doesn’t like being a “pawn” and that the effects of closure feel like “a complete betrayal.”
Reid is one of more than 140,000 people who signed a Change.org petition calling for lawmakers not to receive pay or benefits while the shutdown continues.
“Right now, we can’t close our homes until the government reopens,” Reed told USA TODAY. “This shutdown is impacting even those who don’t work in the federal government. If we as a people suffer because of the shutdown, so should Congress.”
Contact Rachel Barber rbarber@usatoday.com X Follow her at @rachelbarber_
