Shutdown's Economic Impact: Most Shrug, Others Suffer

Many federal employees are suffering financially, but it has had little impact on the broader U.S. economy.

Thomas Gallatin · Jan. 23, 2019

As the partial government shutdown enters day 33, what impact is it having upon the U.S. economy? It is certainly having at least a temporal impact upon the economic lives of roughly 800,000 federal workers, half of whom have been furloughed and the other half are currently working without pay. However, these government employees represent approximately 0.5% of the entire U.S. workforce. So, how significant an impact is the partial shutdown having upon the U.S. economy as a whole?

People who live and work in the DC metro area are most certainly feeling the shutdown effects. Bloomberg estimates that about 1.2 million federal contractors are being impacted by the shutdown to the tune of $200 million a day in lost or delayed revenue.

Some economic forecasters are projecting a first-quarter slowdown of 0.2% to 0.4% due to the shutdown, which would amount to a loss of $10 to $20 billion in GDP. However, the Hudson Institute’s Harold Furchtgott-Roth argues, “Such forecasts are too pessimistic. U.S. GDP is more than $20 trillion annually, or approximately $55 billion daily. The daily compensation of furloughed federal workers is about $52.5 million, or less than 0.1% of GDP. This figure does not include affected government contractors, but even doubling or tripling this figure yields only a small share of GDP.”

In fact, after a month of a shutdown standoff that shows no signs of ending anytime soon, the stock market appears unconcerned. As Furchtgott-Roth further notes, “The Dow and the S&P 500 are up nearly 9% since the shutdown began Dec. 22.” He adds, “Experience also gives reason for optimism. The last major government shutdown occurred in 1995-96. It affected the entire federal government, not only part of it. Yet U.S. GDP growth increased from 2.7% in 1995 to 3.8% in 1996.”

While there are indeed hundreds of thousands of federal employees as well as thousands of private government contractors currently feeling very real financial pain from this shutdown, the larger lesson here is that the strength of the U.S. economy is found in the very fact that it is independent of the federal government. Government doesn’t build and grow the economy; free-market enterprise does.

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