How a Government Shutdown Could Affect the Economy

A federal government shutdown probably wouldn’t be enough to derail the solid U.S.economy.

But it could inject more uncertainty into an already murky economic outlook.Funding for the federal government will lapse at the end of Friday if Congress doesn’t reach a deal to extend it.It is still possible that legislators will act in time to prevent a shutdown, or will restore funding quickly enough to avoid significant disruptions and minimize any economic impact.But if the standoff lasts beyond the weekend, most federal offices will not open Monday, and hundreds of thousands of government employees will be told not to work.

Others will be required to work without pay until the government reopens.For those workers and their families, the consequences could be serious, especially if the impasse drags on.Federal law guarantees that government workers will eventually receive back pay, but that may not come in time for those living paycheck to paycheck.

And the back-pay provisions don’t apply to consultants or contractors.During the last government shutdown — a partial lapse in funding in late 2018 and early 2019 — federal workers lined up at food pantries after going weeks without pay.For the economy as a whole, the effects of a shutdown are likely to be more modest.

Many of the most important government programs, like Social Security and Medicare, would not be affected, and government services that are deemed “essential,” such as air traffic control and aviation security, can continue at least temporarily.Federal workers who put off purchases are likely to make them once their paychecks restart.Forecasters at Goldman Sachs estimate that a shutdown would exert a small but measurable drag on the economy, reducing quarterly economic growth by about 0.15 percentage points for every week the lapse in funding continues.

Most of that toll, though not all, would reverse in the next quarter.Other forecasters have released similar estimates.We are having trouble ...