As the Government Shutdown Continues, Economic Risks Intensify and Experts Warn of Long-Term Impact

Past government shutdowns have been little more than speed bumps for America’s economic growth, but the longer this one drags on, the more economists fear it could be different.

This shutdown could be more damaging than others given its potential to go on for longer, with increasingly severe consequences for workers and contractors, many of which are small businesses. And President Donald Trump’s unprecedented threats to withhold back pay from federal workers, and to lay them off permanently, could magnify the hit to economic growth and consumer spending. Those moves are currently being challenged in court by unions.

As of Tuesday, this 21-day shutdown is tied for the second-longest in the country’s history, behind the 2018-2019 partial shutdown that lasted 34 full days. While the shutdown continues, its effects ripple through the economy as federal workers remain unpaid, critical economic data goes unreported, and crucial government services remain unfulfilled.

Lawmakers in a Stalemate

Meanwhile, Democratic and Republican lawmakers are in a standoff over health care policy.

Glimmers of hope emerged when White House National Economic Council Director Kevin Hassett said the shutdown could end “this week.” However, both sides seem to be deadlocked. As of Tuesday, wagers on betting website Polymarket had priced in a 54% chance the shutdown would continue at least through Nov. 4, making it the longest in history.

Economists are tallying up the mounting economic damage. Bernard Yaros, lead U.S. economist at Oxford Economics, highlighted several major pain points in a report Monday: missed pay by federal workers, missed payments to contractors, and reduced consumer spending.

In line with the estimates of other forecasters, Yaros said the shutdown was likely to subtract between 0.1 and 0.2 percentage points from the Gross Domestic Product each week it continued. Each day the shutdown continues, $800 million of federal contracts are at risk of disruption, Yaros wrote. That grows over time, rising to $1.3 billion per day if the shutdown continues into December.

What Happens To Federal Contractors

“The federal award spigot has all but turned off at the Department of Defense, NASA, and the Department of Homeland Security,” Yaros wrote. Oxford estimated towns in the South, where the military is a big part of the economy, will be hit hardest.

Contractors will face increasing risks as this wears on, affecting the estimated 5.2 million people they employ, Yaros wrote.

“While contractors can manage through a short-lived suspension of federal activity, a protracted shutdown can significantly impact their cash flow, potentially leading to furloughs, pay cuts, or even layoffs. Small businesses that contract with the government are more likely to resort to such cost-saving measures as they may have relatively thinner cash buffers. In FY2025, small businesses received half of all contracts awarded by the federal government.”

Businesses will also face delays in getting permits and business loans from the federal government, further slowing down hiring.

In past shutdowns, the economy has typically bounced back after the shutdown ended—after furloughed federal workers are given back pay and things return to normal.

“Historically, shutdowns have had modest and temporary effects on growth; however, the risk of more lasting effects on growth increases with the duration of the shutdown,” Gus Faucher, chief economist at PNC Bank, wrote in a commentary.