How Much Does a Government Shutdown Cost?

Photo via JPMorgan

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The United States federal government shut down on Wednesday, October 1st, 2025, after Congress was unable to pass a budget before the fiscal year ended, marking our twenty-third shutdown since 1974. Historically, government shutdowns have had slight impacts on the economy and often made up for it in the following months. But this time, economic analysts aren’t so sure. Nearly four weeks in, with no end in sight, the question remains: what does this mean for the economy?

Several federal agencies responsible for indicators of U.S. economic activity, such as the Bureau of Labor Statistics and the Bureau of Economic Analysis, have suspended operations, thus delaying the distribution of official economic data, such as the U.S. jobs report and the Consumer Price Index (CPI) report. Before the federal government shutdown, economic indicators were sending rare and conflicting signals. While job growth and economic growth are typically closely linked, data showed that employment was barely growing while gross domestic product (GDP) had a 3% expansion. 

With the absence of key government payroll data for September, it remains unclear whether the weakness in employment has improved. The Federal Reserve is now scheduled to meet in October to discuss potential interest rate cuts without the knowledge of the latest economic data. According to economist Derek Tang, “the puzzle is less complete, and they will have to use their judgements to fill the gaps.” The question here is whether judgment alone will be enough, or does it put an already vulnerable U.S. economy, currently grappling with issues such as tariffs, at greater risk? Much of the private-sector data will continue to be issued, giving the Federal Reserve “some sense, not a good sense” of the current state of the economy, according to Aditya Bhave, Senior U.S. Economist at Bank of America Global Research. However, if they lack the necessary data to make informed decisions, the risk of errors increases, and we end up with higher unemployment or faster inflation than would otherwise be the case.

The cost of a government shutdown often begins long before it even happens. Federal agencies must spend time and resources securing facilities, freezing payments, and winding down operations, while contractors pad their budgets in anticipation of a shutdown.

State and local governments, which rely on federal funding, are also forced to delay services, cover costs, and balance budgets on short notice. The Congressional Budget Office estimated that the 35-day-long 2018 shutdown reduced economic output by $11 billion, including $3 billion that was never fully recovered. This meant that in 2019, the GDP was estimated to be 0.02% lower due to the shutdown. So, even when a shutdown is barely avoided, the preparations and uncertainty alone still have substantial costs.

Much like the 2018 shutdown, the current shutdown is taking place under the Trump administration. This time, President Donald Trump has threatened to conduct another round of mass federal layoffs and withhold back pay for furloughed workers, even though the Government Employee Fair Treatment Act of 2019 states that federal workers who are furloughed must receive back pay once government funding has been restored. Budget experts have criticized the White House for incorrectly presenting layoffs as a fiscal necessity, a rationale we’ve never seen in any recent presidential history. JPMorgan economist Michael Feroli estimates that each week of a shutdown reduces annualized GDP growth by 0.1 percentage point. While furloughed employees typically receive back pay and only part of the government is affected, these threatened layoffs and permanent job losses could create significant risks for the labor market and consumer spending.

While the shutdown will eventually end, its effects on the economy and labor market remain uncertain. The longer the shutdown lasts, the greater the potential impact on the health of the economy. With the continued absence of key economic data, policymakers must operate in the dark in an already uncertain environment.

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This article was edited by Elise Grin and Jordan Donegan.