The government shutdown ended this week, after 43 days, which was the longest on record and is expected to leave the biggest fiscal footprint.
While exact estimates of the cost hit and the overall fiscal impact are still being quantified, it is safe to say that, due to the length of the shutdown, it will be the costliest in history. Among the costs it imposed are lower economic output, such as through lost business for caterers that serve federal employees, and an increase in the national debt.
“It was the longest government shutdown, and the longer they drag on, the costlier they become,” Romina Boccia, director of budget and entitlement policy at the libertarian Cato Institute, told the Washington Examiner.
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Boccia, who has been closely following the economics of the shutdown, said Thursday after the government reopened that she estimates the economic losses that won’t be recovered from the shutdown to be about $7 billion.
As the United States looked to be barreling toward a shutdown in October, the nonpartisan Congressional Budget Office released preemptive estimates modeling the economic impact of three different shutdown scenarios: a four-week shutdown, a six-week shutdown, and a two-month shutdown. The six-week scenario is closest to what played out.
The CBO predicted that, in the six-week scenario, annualized quarterly GDP growth would contract by about 1.5% in the fourth quarter. But a lot of that would be made up in subsequent quarters. Still, the shutdown will be a net loser for GDP in the long run.
“The output lost because furloughed employees worked fewer weeks during the shutdown would not be recovered,” the report reads. “CBO estimates that, by the end of 2026, the reduction in hours worked by furloughed federal employees would result in a cumulative loss of real GDP … $11 billion in the six-week scenario.”
The effects on unemployment will be marginal in the long run, as most furloughed workers are expected to return to their jobs. However, the CBO projected that the national unemployment rate likely rose by 0.4% during the shutdown.
Mark Hamrick, senior economic analyst at Bankrate, said that while much of the GDP hit will be made up for in the first quarter of next year, there will still be “billions of dollars of economic activity which has been destroyed” because of the lengthy shutdown.
“Think about business which did not occur — think about the lost airline traffic, the disruption in airline traffic alone, the lost consumer activity, and the lost output on the part of federal workers,” Hamrick told the Washington Examiner.
Government employees haven’t been paid in weeks, but they generally will be paid back in full. However, businesses that support government workers, or those with a large share of such workers as their customer base, will not recoup that revenue.
For instance, a local coffee shop adjacent to a major federal government office might have experienced substantially less foot traffic during the shutdown, which ultimately cut into its profits, worsening as the shutdown dragged on into November.
Smaller or mid-sized businesses that lacked the financial resources to insulate themselves during the shutdown were disproportionately affected.
“If they have been dependent on either customers that are in the federal government, or meeting consumers, or business relationships with the federal government, they have been hurt by this as well,” Hamrick added.
Take the example of a federal employee who wanted to buy a new set of headphones or a television. They might have put off buying that item while they were furloughed. Once the backpay hits their accounts, though, they can go out and buy.
But if that same federal employee usually buys lunch near their office every day but didn’t do so during the shutdown because they were furloughed, they aren’t going to go back and buy six weeks’ of lunches somewhere. The loss to the sandwich shop is permanent.
Another glaring example of the cost of the government shutdown is on the airline and travel industry. As the shutdown inched to a close, the situation with air traffic controllers and other airline employees calling out or missing work got dire.
Thousands of flights were canceled or delayed, and many travelers may have opted to forego their flights due to the chaos.
“The economic costs of canceled flights and hours that the airlines have to pay for the pilots and their runway time, and the flight attendants that end up getting disrupted during the government shutdown but are still eligible to be compensated for their time, would be another example,” Boccia said.
Additionally, uncertainty stemming from the shutdown might have delayed certain projects and investments, which could incur further costs, Boccia said.
While it may seem paradoxical that a government shutdown would increase the national debt, past shutdowns have cost taxpayers.
For instance, in 2013, when the government shut down for 16 days, the White House’s Office of Management and Budget later concluded that the pause cost the government $2 billion.
Additionally, the bipartisan Senate Permanent Subcommittee on Investigations surveyed 26 federal agencies and found that the last three government shutdowns cost taxpayers nearly $4 billion.
And while the longest shutdown in U.S. history was finally resolved this week, uncertainty remains on the horizon. The legislation that was passed only funds the government through January, although certain things in the Supplemental Nutrition Assistance Program are funded through the fiscal year.
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That could lead to another shutdown next year, which could incur additional costs. Boccia said that without the political leverage of food stamp payments ending, that one could be even longer.
“I could imagine another government shutdown after January 30, and I worry that that one could drag out much longer,” she warned.