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As a general rule, every week that federal operations are shuttered can shave off about one-tenth of a percentage point from the nation’s total economic output that quarter. The longer that federal funding remains blocked, the greater the consequences, and the more difficult it is for the economy to make up for lost ground in future months.
The risks were laid bare in Mr. Trump’s first term, when part of the federal government shuttered for a five-week period that ended in January 2019. That shutdown, the longest in history, shaved off 0.1 percentage points from the nation’s gross domestic product in the final quarter of 2018 and another 0.3 percentage points in the first quarter of the following year, according to an analysis this week by economists at Wells Fargo.
The lapse in funding did not affect the entire federal government at the time. The administration took steps — later found to have violated the law — to keep some programs running anyway. And the hit to the economy, which would recover from its mild losses, did not ameliorate the other ways that the closure might have harmed individual Americans. That included federal workers, who saw significant interruptions to their pay.
“You can only go so long with I.O.U.s,” said Sam Berger, a senior fellow on the federal fiscal policy team at the Center on Budget and Policy Priorities, a left-leaning group. “You can’t pay a mortgage. You can’t pay for your groceries. That has a real impact.”
Ryan Sweet, the chief U.S. economist at Oxford Economics, said that a sharp and prolonged drop-off in federal spending also tended to have a ripple effect, eventually curtailing “consumer spending, private contractors and other business activity.” Firms in particular face risks if they cannot obtain federal loans, one of many consequences of a shutdown that he described as difficult to “disentangle” from the data.
This year, though, a federal shutdown appears poised to arrive at a moment of great economic uncertainty, potentially worsening the impact if the stalemate drags on for weeks or months.
Punishing tariffs now apply to many of the world’s exports to the United States, with more duties still to come, as Mr. Trump forges ahead with a global trade war that is facing a serious legal challenge in the Supreme Court. Economists once feared that these tariffs could plunge the nation into a recession, and while such a doomsday has not arrived, foreign goods have still become more expensive as U.S. firms run out of ways to absorb the costs of the president’s trade brinkmanship.
The labor market has also stalled, adding only 22,000 jobs in August, according to data released this month. The slow growth has occurred in tandem with a related push by Mr. Trump to crack down on immigration and conduct mass deportations, which has shrank the pool of available workers.
Jerome H. Powell, the chairman of the Federal Reserve, described the overall economy on Tuesday as “challenging,” underscoring the ways that the president’s agenda has vexed the nation’s central bank on the heels of its first interest rate cut in months.
“I would say, not all government shutdowns are created equal, and depending on how resilient the economy is, the shock from a government shutdown may be greater or lesser,” said Gregory Daco, the chief economist at EY-Parthenon. “And right now, what we’re seeing is an economy that’s subject to a number of conflicting headwinds and tailwinds, but it seems like the economy is losing momentum.”
Michael R. Strain, a conservative economist at the American Enterprise Institute, said a prolonged breakdown in Washington could also weigh on financial markets. He pointed to the bond market, where investors this year have demanded more favorable terms on government debt, suggesting persistent unease with the nation’s political and fiscal trajectory.
“The longer a shutdown lasts, the more it calls into question some of the basics around the government’s ability to function,” Mr. Strain said. “The market may be pretty forgiving of a short-term shutdown, but I think the longer it goes, the greater the concern about the stability of the U.S. government.”
But the exact toll on the economy would not be known for some time. The Bureau of Labor Statistics, which tracks inflation, growth and other key economic indicators, could also have to disable its operations, stalling key data until Congress can broker a deal.
https://www.nytimes.com/2025/09/24/us/politics/government-shutdown-us-economy.html