The Congressional Budget Office (CBO) warned on Wednesday (October 29) that this year's federal government shutdown has already cost the US economy at least $18 billion, and that this figure "will grow further" in the coming weeks.
The nonpartisan organization emphasized that most of the impact will be temporary, with economic growth expected to receive a short-term boost in the first quarter of next year. However, they estimate that $7 billion to $14 billion of the impact on gross domestic product (GDP) will be irrecoverable, depending on the final duration of the government shutdown.
As of Wednesday (October 29), the partial government shutdown had entered its 29th day, with no end in sight. Senate Republicans are calling on Democrats to support a temporary funding bill to provide funding for federal agencies until November 21; while Democrats are demanding negotiations to extend the expiring federal tax credit to help Americans purchase private health insurance through the Affordable Care Act. According to CCTV News, Senate Minority Leader Chuck Schumer stated on the 28th that the US federal government shutdown could continue until November, at which point millions will face high healthcare costs due to the expiration of the Affordable Care Act tax credit. Hundreds of thousands of federal workers have been furloughed, others are working without pay, and federal food assistance is also nearing its end.
A report released by the CBO on Wednesday showed that the US fourth-quarter GDP has already declined by at least one percentage point due to the government shutdown. If the shutdown enters its sixth week (around mid-November), fourth-quarter real GDP growth will be 1.5 percentage points lower than normal, equivalent to a $28 billion loss in economic output.
Furthermore, if the shutdown lasts for eight weeks, around the Thanksgiving holiday, the impact on real GDP will increase to two percentage points, or $39 billion.
“While most of the decline in real GDP will eventually recover, the Congressional Budget Office estimates that $7 billion to $14 billion will be irrecoverable,” CBO Director Phillip Swage wrote in an October 29 letter to House Budget Committee Chairman Jodey Arrington, a Texas Republican, who requested the analysis.
Specifically, the CBO warned that if the government shutdown ends this week, the economy will suffer $7 billion in permanent damage. If the shutdown lasts six weeks until November 12, the permanent damage will reach $11 billion; if it lasts eight weeks until November 26, the permanent damage will reach $14 billion.
“The economic impact of the shutdown is still uncertain. These impacts depend on the decisions the government makes during the shutdown,” Swage added.
The CBO also reported that several factors have contributed to the contraction in economic activity, including reduced services provided by federal employees, decreased private sector output, and reduced federal spending on goods, services, and food assistance.
Finally, the agency warned that 650,000 federal employees have been furloughed due to the government shutdown. If all these employees are considered temporarily unemployed, it could push the unemployment rate up by 0.4 percentage points in October, which would be the largest monthly increase in the unemployment rate since the outbreak of the pandemic.
