As the government shutdown continues, economic risks intensify and experts warn of its long-term impact

Government shutdowns in the past were little more than speed bumps for America’s economic growth, but the longer this crisis drags on, the more economists fear that things might be different.

This closure may be more harmful than others given the possibility that it will continue for a longer period, with increasingly severe consequences for workers and contractors, many of whom are small businesses. President Donald Trump’s unprecedented threats to withhold wages and permanently lay off federal employees could exacerbate the damage to economic growth and consumer spending. These moves are currently being challenged in court by unions.

As of Tuesday, this 21-day lockdown became the second-longest in the country’s history, after the 2018-2019 partial lockdown that lasted a full 34 days. As the shutdown continues, its effects ripple through the economy as federal workers remain without paychecks, critical economic data goes unreported, and vital government services remain unfulfilled.

Lawmakers are in a bind

Meanwhile, Democratic and Republican lawmakers are at odds over health care policy.

A glimmer of hope appeared when the director of the White House National Economic Council, Kevin Hassett, said that the shutdown could end “this week.” However, it appears that both sides have reached an impasse. As of Tuesday, bets on betting site Polymarket were at 54% that the lockdown would last at least until November 4, making it the longest in history.

Economists are counting the increasing economic damage. Bernard Yaros, chief U.S. economist at Oxford Economics, highlighted several key pain points in a report released Monday: unpaid wages to federal workers, missed payments to contractors, and declining consumer spending.

In line with estimates from other forecasters, Yaros said the lockdown would likely subtract between 0.1 and 0.2 percentage points from GDP each week it continues. Every day that the shutdown continues, $800 million in federal contracts are at risk of being held up, Yaros wrote. This grows over time, rising to $1.3 billion per day if the lockdown continues into December.

What happens to federal contractors?

“The federal award spigot has stopped at the Department of Defense, NASA, and the Department of Homeland Security,” Yaros wrote. Oxford estimated that cities in the South, where the military makes up a large part of the economy, would be hardest hit.

Contractors will face increasing risks as this continues, affecting an estimated 5.2 million people who work for them, Yaros wrote.

“While contractors can manage with a short-term suspension of federal activity, a prolonged shutdown could significantly impact their cash flows, which could lead to furloughs, pay reductions, or even layoffs. Small businesses that contract with the government are more likely to resort to such cost-saving measures because they may have relatively fewer cash reserves. In fiscal year 2025, small businesses received half of all contracts they received Granted by the federal government.”

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

In previous shutdowns, the economy bounced back after the shutdown ended — after furloughed federal workers were paid back and things went back to normal.

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