Typically, government shutdowns follow a familiar script: each party blames the other, a resolution is reached in short order and the immediacy of the issue fades in voters’ minds long before the next election rolls around. Rarely do they result in lasting economic harm that can’t be recovered once funding resumes.
Almost four weeks into the shutdown that shows no signs of imminently ending, economic analysts are worried that this time may be different.
Partly, that is because of the length of the impasse. “A shutdown that lasts a couple weeks, no big deal,” Mark Zandi, chief economist at Moody’s, told MSNBC. “If the shutdown extends into a second month, then damage starts to accumulate pretty quickly.”
But it is also because of a series of moves from the Trump administration that were aimed at increasing its negotiating leverage over Democrats — which could leave a lasting dent in the American economy.
For thousands of furloughed federal workers and those working without pay, the shutdown’s effect is immediate. Many government employees have already received partial paychecks, and more are slated to miss their first full paycheck this Friday. Social safety-net programs for low-income families, such as food stamps, are also in jeopardy of running out of funds.
The White House has argued that furloughed federal workers are not necessarily entitled to backpay, a common occurrence during previous shutdowns. President Donald Trump is also carrying out mass layoffs, which Office of Management and Budget Director Russell Vought recently said could eclipse 10,000 people.
Layoffs and the potential loss of backpay could create risks in an already deflated job market and put pressure on consumer spending. “The impact could be worse this time,” Michael Feroli, chief U.S. economist at JP Morgan, wrote in a research memo earlier this month.
“The impact could be worse this time.”
michael feroli, chief u.s. economist, J.p. morgan
The blame game suddenly has real stakes. And top Trump administration officials are eager to cast both the shutdown and its economic fallout as Democrats’ fault.
“The economic harm is real now,” White House National Economic Council Director Kevin Hassett said last week, going on to label it the “Schumer shutdown.” Treasury Secretary Scott Bessent warned that “we are starting to cut into muscle,” referring to the funding impasse’s economic toll. A White House Council of Economic Advisers analysis estimated that the nation could suffer $15 billion in economic losses a week.
In light of those effects, Trump has tapped $8 billion in unallocated Pentagon funding to cover the Oct. 15 paychecks of U.S. troops, and the administration has touted its efforts to use tariff revenue to protect funding for food aid.
“The Administration is committed to mitigating the consequences of the Democrat government shutdown for everyday Americans,” White House deputy press secretary Kush Desai said in a statement. “The White House has been sounding the alarm bells about the economic consequences of a government shutdown from the get-go. Democrats, however, didn’t listen or care and voted to shut down the federal government anyway.”
Democrats, meanwhile, are quick to heap blame for the economic consequences at the doorstep of the White House.
The administration has slashed billions of dollars in grants to previously committed ventures in Democratic-led states. Trump pledged to halt $18 billion for two major New York-area infrastructure projects. The Energy Department terminated $7.6 billion in clean-energy contracts in 16 states. Additionally, Vought announced Friday that the Army Corps of Engineers would pause — and consider canceling — $11 billion in projects in New York, San Francisco, Boston and Baltimore.
Trump’s advisers have threatened more cuts the longer the shutdown continues. “In all of these cases, none of these steps are required by the shutdown,” said Sam Berger, a senior fellow at the Center on Budget and Policy Priorities, who served in the Office of Management and Budget during the Obama and Biden administrations. “Rather, they’re an intentional effort to try and inflict economic pain in order to force Democrats to concede.” Those actions make this government funding lapse “the most unique,” Berger added. Michael Strain, an economist at the right-of-center American Enterprise Institute, believes the U.S. economy is stronger than it was during previous shutdowns, noting August’s low unemployment rate of 4.3 percent and unofficial forecasts for growth in the third quarter. “I think it’s stronger than the consensus view of economists thinks it is,” Strain said. An estimated 55 percent of Americans said they disapprove of Trump’s handling of the economy, according to a CNBC survey conducted amid the shutdown Oct. 8-12, marking his lowest net approval rating on the subject since the president’s first term. More than half of respondents, 53 percent, said they would blame Trump and Republicans for the lapse in funding if it caused significant economic harm. Some government entities have recently flashed warning signs about the broader economic landscape. The Labor Department advised last week that the president’s mass deportation effort is weighing on the country’s farmers who rely on undocumented workers, and threatens to drive up grocery prices. Elevated tariff levels on foreign countries have also started to lead to higher prices for consumers and businesses, a Federal Reserve report found. After a détente between the U.S. and China in an escalating trade war, Trump threatened a new 100 percent tariff on Chinese importers in retaliation for a strict export-control rule that President Xi Jinping imposed on advanced technology products with critical minerals that originated from his country. Trump acknowledged in an interview with Fox Business that the duties are “not sustainable,” but added that the rate “could stand.” Bessent is set to discuss trade relations with his Chinese counterpart next week ahead of a likely Trump-Xi meeting in South Korea later this month. In response to prior signs of distress in the labor market, the Federal Reserve — the U.S. central bank — is expected to cut interest rates later this month, albeit without the knowledge of the latest economic data that is normally released due to the disruption in federal services. Lower interest rates, however, would be welcome news to borrowers, particularly homebuyers. “The economy is in a more fragile place than it typically is,” said Zandi. “Any little thing could do the economy in.” Layoffs and the potential loss of backpay could create risks in an already deflated job market and put pressure on consumer spending. “The impact could be worse this time,” Michael Feroli, chief U.S. economist at JP Morgan, wrote in a research memo earlier this month.
Akayla Gardner is a White House correspondent for MS NOW.
Laura Barrón-López covers the White House for MS NOW. Recommended
