Government Shutdown’s Potential Business Effects

Economic reports, employment checks and small business loans may be affected.
PublicPolicy-blog

A government shutdown lasting longer than two months would likely cause another recession, but a brief shutdown would have limited economic impact, according to economist Mark Zandi's written testimony to the U.S. Congress Joint Economic Committee. Zandi, chief economist and co-founder of Moody’s Analytics, testified before the committee roughly two weeks before the government shutdown that began this week on Oct. 1.

The length of the shutdown would determine the severity of the economic impact, Zandi says. While the consequences of a prolonged shutdown could be severe, a shutdown lasting only three or four days would have modest economic consequences, he says, costing the economy about 0.2 percentage point of annualized real GDP growth in the fourth quarter.

Part of the impact comes when businesses hold back on investment due to uncertainty about what’s coming next. (Read more about why businesses never have complete clarity and what they should do about it.)

Federal workers that the government classifies as "essential" will continue to work through the shutdown, but the remaining 800,000 federal workers will be furloughed without pay, according to the Washington Post, affecting the operations of numerous federal organizations. Here are a few examples of government entities affected by the shutdown and what those changes mean for U.S. businesses:

Many federal economic reports are unavailable, such as the U.S. Census Bureau's monthly report on new residential construction. Monthly durable goods and wholesale trade reports could also experience delays. According to census.gov, "Due to the lapse in government funding, census.gov sites, services, and all online survey collection requests will be unavailable until further notice."

Some federal construction projects may be delayed. Ken Simonson, chief economist for the Associated General Contractors of America, said it's hard to get a sense of where the industry is heading when basic construction spending data isn't available, but he says he expects a decline in federal construction spending until the government reopens. Solicitations for new federal construction projects will be delayed, he says, and current projects may also be put on hold as many federal supervisors will not be available to approve change orders or answer questions.

Legal immigration status checks are unavailable. The Department of Homeland Security's E-Verify program is unavailable due to the federal government shutdown, so confirmation of the legal immigration status of prospective employees won't be available until regular operations resume.

Federal small business loans have halted. According to the Washington Post, Small Business Administration approval of business loan guarantees and direct loans would be likely to cease during a shutdown. According to the SBA website, current site information may be out of date due to the shutdown.

According to the Washington Post, senior Republicans have privately predicted that the closure will last at least a week.

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