The unprecedented government shutdown will weigh on a US economy already under stress

The six-week government shutdown that concluded late Wednesday will significantly impact an already challenged U.S. economy, with experts projecting the effects will reverberate for months despite the reopening of federal offices.

Approximately 1.25 million federal workers have gone without paychecks since October 1, amounting to roughly $16 billion in missed wages, according to Congressional Budget Office estimates. The aviation sector has seen more than 10,000 flight cancellations since last week, with disruptions expected to continue even as air traffic controllers return to work. Government contract awards have slowed considerably, and numerous food aid recipients have experienced interruptions in their benefits.

While much of the lost economic activity will recover once government operations resume—federal workers will receive back pay under the congressional agreement—certain economic losses are permanent. Canceled flights won’t all be rebooked, postponed restaurant reservations may not be rescheduled, and many delayed purchases simply won’t happen.

“The shutdown has been harmful to the U.S. economy and to critical data collection about employment, prices and more,” said Heather Long, chief economist at the Navy Federal Credit Union.

The CBO estimates the shutdown will reduce fourth-quarter growth by approximately 1.5 percentage points—effectively cutting growth by half compared to the third quarter. While the economy should see a 2.2 percentage point boost in the first quarter of 2025, about $11 billion in economic activity will be permanently lost.

This shutdown far exceeds the previous record of 35 days in 2018-2019, which only partially closed government operations and reduced GDP by just 0.02%. The current closure compounds existing economic challenges, including sluggish hiring patterns, persistent inflation, and uncertainty stemming from President Donald Trump’s tariff policies. Despite these headwinds, most economists are not predicting a recession.

The Washington D.C. metropolitan area has been particularly hard-hit, where unemployment already stood at 6% following Trump’s federal workforce reductions earlier this year. However, the impact extends well beyond the capital region. Federal workers comprise 5.5% of Maryland’s workforce, 2.9% of New Mexico’s, 2.6% of Oklahoma’s, and 3.8% of Alaska’s labor force.

An estimated 5.2 million federal contractors have also been affected, according to Bernard Yaros, an economist at Oxford Economics. Unlike direct federal employees, contractors are not guaranteed back pay once operations resume.

The shutdown has severely disrupted the flow of economic data that the Federal Reserve relies on for monetary policy decisions. With the government missing two monthly jobs reports and October’s inflation data likely never to be published, the Fed may postpone an anticipated December interest rate cut.

“What do you do if you’re driving in the fog? You slow down,” Fed Chair Jerome Powell noted at a recent news conference, highlighting the unusual economic uncertainty. Susan Collins, president of the Federal Reserve Bank of Boston and a voting member of the rate-setting committee, expressed hesitancy about supporting another rate cut next month, citing the data vacuum as a primary concern. Fewer rate cuts could potentially dampen borrowing and consumer spending in coming months.

The travel industry has suffered substantial losses. Beyond the thousands of canceled flights due to FAA actions to reduce pressure on unpaid air traffic controllers, Tourism Economics calculated the shutdown reduced travel spending by $63 million daily, totaling approximately $2.6 billion over the six-week period.

Consumer confidence has also plummeted. The University of Michigan’s consumer sentiment index dropped to a three-year low of 50.4 last week—down 6.2% from the previous month and nearly 30% from a year ago—as Americans expressed pessimism about personal finances and business conditions.

Federal procurement has largely ground to a halt, with Yaros estimating that approximately $800 million in new contracts faced non-issuance each day of the shutdown. “The federal award spigot has all but turned off at the Department of Defense, NASA, and the Department of Homeland Security,” he noted.

Additionally, the shutdown delayed $8 billion in monthly SNAP food assistance to 42 million recipients in November, causing significant financial disruptions for vulnerable households and likely reducing consumer spending. While the government indicates benefits could resume as soon as Thursday in many states, the timing of full restoration remains uncertain.

As the government reopens, economists will closely monitor recovery patterns, particularly focusing on whether permanent economic damage exceeds initial projections.