The six-week US government shutdown officially ended on Wednesday evening local time, but the standoff will impose new drags on an already struggling economy, with its full impact potentially taking months to emerge.
Since October 1, approximately 1.25 million federal employees went unpaid. Officials reported nearly 10,000 flight cancellations since last week, with disruptions expected to persist even after air traffic controllers return. Meanwhile, government contract approvals slowed, and some food aid beneficiaries faced interruptions.
While most economic activity is expected to rebound as federal workers receive back pay, certain canceled flights won't be rescheduled, many restaurant reservations won't be rebooked, and delayed consumer spending will permanently disappear.
The shutdown also suspended critical economic data releases on employment, inflation, and consumer spending, potentially prompting the Federal Reserve to delay its planned December rate cut.
The Congressional Budget Office (CBO) estimates the shutdown reduced Q4 GDP growth by 1.5 percentage points—halving the growth rate. Though reopening could boost Q1 2024 growth by 2.2 percentage points, roughly $11 billion in economic activity will be permanently lost.
By comparison, the 2018-2019 partial shutdown lasted 35 days but impacted GDP by just 0.02%. This year's disruption compounded existing economic challenges: weak job growth, persistent inflation, and tariff-related uncertainties. Most economists, however, believe a recession remains unlikely.
**Wage Losses** The CBO estimates federal workers lost $16 billion in wages, reducing retail, dining, and travel spending while delaying durable goods purchases. Though Congress approved back pay, about 5.2 million federal contractors won't receive compensation.
The shutdown hit Washington, DC hardest, where pre-shutdown unemployment already reached 6%. Federal workers also constitute significant portions of Maryland (5.5%), New Mexico (2.9%), Oklahoma (2.6%), and Alaska (3.8%) workforces.
**Fed Policy Implications** With key datasets like employment and inflation reports disrupted, the Fed may postpone its anticipated December rate cut. Chair Jerome Powell likened policymaking to "driving in fog—you slow down."
Boston Fed President Susan Collins also expressed reservations about further cuts due to data gaps, which could weaken credit and consumer activity.
**Travel Disruptions** The FAA canceled over 10,000 flights to relieve overworked controllers. Tourism Economics estimates daily travel spending fell by $63 million, totaling $2.6 billion in losses.
**Consumer Confidence** The University of Michigan's consumer sentiment index plunged to 50.4—a three-year low—with sharp declines in personal finance and business condition expectations.
**Contracts & Spending** While not all government spending halted, new contract approvals nearly froze. Economist Bernard Yaros estimates $800 million daily in unissued contracts, particularly affecting Defense, NASA, and Homeland Security departments.
**Food Assistance** The shutdown delayed $8 billion in SNAP benefits for 42 million recipients, exacerbating household financial strain. Officials indicate distributions may resume as early as this Thursday.
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