U.S. Economy Could Lose Up to $12 Billion a Month Due to Government Shutdown

While Americans everywhere anxiously await news on the partial government shutdown, one question in particular looms on many people's minds: how does this affect me?

If you're one of the 2.1 million federal workers who may be furloughed if the government shuts down on Oct. 1, 2023, the financial consequence is immediate.

For the roughly 42 million Americans who receive monthly assistance through the Supplemental Nutrition Assistance Program (SNAP), the government shutdown is a financial ticking time bomb, as benefits are not guaranteed after October.

However, another less talked about group of Americans is likely to be hit hard by an extended government shutdown: small business owners.

This is because everyone from landlords to grocers, rely on either federal employees or those on federal assistance, to partially patronize their businesses with government dollars.

While not directly paid by the government, their sales and profits diminish with the disposable income of their consumers, creating a negative spiral effect.

With the potential loss of federal salaries starting in October and SNAP, among the largest government assistance programs, at the end of October, the U.S. economy could stand to lose up to $12 billion for every month the government shuts down -- a daily loss of $390 million.

How to calculate economic loss of the government shutdown

When analyzing how the government shutdown affected the economy, we analyzed two main factors: the loss of salary from federal government workers, and the loss of income substitution provided through SNAP programs. There are likely other losses stemming from closures of passport offices, immigration courts, and a whole host of other agencies.

For loss of federal income we gathered employment and average salary data collected by the U.S. Office of Personnel Management. We then applied an average tax rate of 25% to calculate for true spending power.

It should be noted that some federal agencies are either not reliant on Congress for funding, or exempted from the shutdown for reasons such as providing immediate safety for human life.

Monthly SNAP data on benefits, individuals, and households is provided by the U.S. Department of Agriculture.

Social Security and Medicare will not be impacted by a government shutdown, because they are mandatory spending.

These projections should be treated as a way to generally gauge the impact of a government shutdown, not as absolute figures. They are intended for illustrative purposes and may change based on unforeseen circumstances and policy decisions.

Economic impact of a government shutdown by state

The effects of the government shutdown are not felt equally across state lines. While states with large populations such as California, Florida, and Texas predictably saw some of the largest total dents to their economy, areas hit the hardest on a per capita basis were those with a high percentage of government workers, subsidies, or both.

Unsurprisingly, Washington D.C. saw the largest per capita loss ($722) and largest projected monthly loss ($460 million) from a government shutdown. That’s due to it having the most federal workers and the highest average salary for federal employees in the United States.

D.C.’s neighbors Maryland and Virginia would be the second- and third-hardest hit states by total projected loss, with roughly 140,000 federal employees in each state making over $100,000 annually, on average. Those states also received a decent amount of SNAP benefits.

Low population states that have a relatively large percentage of their population receiving SNAP benefits, like Alaska and Hawaii, are among the most impacted per resident.

States that would feel the least economic impact from a government shutdown tend to have relatively few federal employees and receive SNAP benefits well below the national average.

These are back of the envelope projections but make clear that even a short government shutdown would reverberate through the economy.

What to do if you’re impacted by the government shutdown

For millions of Americans, a government shutdown can lead to loss of income or important benefits -- frustratingly through no fault of their own. Here are some steps to prepare your finances if you may be impacted:

• Check your emergency fund: Our experts recommend maintaining an emergency fund that can cover three to six months of living expenses. To see how your savings stack up, use our emergency fund calculator.
• Review your budget: If you expect to lose income or benefits as a result of a government shutdown, look at your recent spending to see where you can find savings. Consider swapping out entertainment spending for trips to the park or game nights with friends. See if you can save by cooking at home instead of going out to eat.
• Put off travel: Government shutdowns in the past have led national parks to essentially close and generated long security lines at airports. If you were planning a trip in October, you may want to reconsider as a way to save time and money.

Sources

• U.S. Census Bureau (2023). “State Population Totals and Components of Change: 2020-2022.”
• U.S. Department of Agriculture (2023). “SNAP Data Tables.”
• U.S. Office of Personnel Management (2023). “FedScope.”