The U.S. government has now been shutdown for over 3 weeks and counting. The impact on growth is likely to be noticeable, though it’s expected to present a mild slowdown and potentially a timing shift between quarters, rather than causing growth to turn negative.
This is the second longest government shutdown on record. For comparison, the longest shutdown came in 2018-19 at almost 5 weeks under the previous Trump administration. However, that shutdown was a partial shutdown with the Departments of Defense, Labor and Energy, among other agencies, continuing to function as normal. This time it’s a broader government shutdown.
Essential government functions including as Medicare and Social Security continue to operate largely as normal. Essential government employees typically work without pay during the shutdown. The drag on economic growth will likely be noticeable and the timing shift may depress economic growth in the fourth quarter of 2025, whereas the first quarter of 2026 may see a relative rebound in activity from resumed spending. These timing impacts are expected to come with some absolute decline in growth as not all potential spending will be fully recovered.
Assessing the Economic Impact Of The Shutdown
The impact of the shutdown is roughly evenly split between government workers not being paid and goods and services not being acquired by the government. There is a legal guarantee of backpay for workers once the shutdown ends. Missed spending will typically be made up.
For the 2019 shutdown the Congressional Budget Office estimated the economic impact at about $18 billion dollars total. However, much of that spending was then delayed rather than eliminated, so the net impact of lost spending was estimated at $3 billion dollars.
This time, with more agencies impacted, the economic might could be larger, though for now the shutdown is shorter. Certain funds might be reallocated, so that military, and perhaps other, employees could be paid, according to a report by The Hill.
Potential Shifts In Quarterly GDP
The shutdown could also cause a timing impact on quarterly Gross Domestic Product growth. That’s because assuming the government shutdown does end in the fourth quarter (October-December) the bulk of the shutdown’s impact can be expected to be felt in that quarter, whereas the resumption in spending, given lags, may not be fully felt until the first quarter of 2026.
Roughly, this could suppress quarterly growth in the fourth quarter of 2025 by around half a percent, but then there might be a rebound in the first quarter of 2026 from make-up spending. Therefore, as much as the shutdown could be a slight drag on economic growth it’s likely to cause a more significant shift in growth between quarters.
Other Estimates Of Shutdown’s Growth Impact
The CBO’s figures are one estimate of a shutdown’s impact. Goldman Sachs in a 2023 analysis put the cost of a shutdown as a 0.2% reduction in growth per week, putting the current drag on growth at roughly a 0.6% reduction to Q4 GDP growth so far. Analysis by EY Parthenon costed the shutdown at $7 billion a week. The U.S. Treasury has offered a materially higher estimate of a cost of $15 billion a week, due, in part, to contracts not being awarded.
Limited Economic Data
In addition the shutdown is delaying or eliminating some statistical economic reporting provided by the government, so to some extent the impact of the shutdown and the overall state of the economy is likely harder to assess.
What To Expect
The shutdown appears likely to have a noticeable impact on growth for the fourth quarter of 2025 at this point. However, it will likely be a reduction in growth rather than growth turning negative. Correspondingly, the first quarter of 2026 could see an uptick in growth as various spending resumes with a delay. The New York Fed’s growth nowcast model, currently estimates fourth quarter 2025 growth to be relatively strong at over 2%, so the shutdown is unlikely to cause growth to turn negative.