Crisis Scenario: Possible Government Shutdown Threatens the USA

An imminent government shutdown could soon halt the payment of hundreds of thousands of federal employees and delay services, as lawmakers continue to disagree on funding beyond September 30. The financial impact of such a shutdown largely depends on its duration. According to a new analysis by Gregory Daco, chief economist at EY-Parthenon, each week of a shutdown could cost the US economy around $7 billion. Additionally, a halt in an already challenging economic environment could strain the confidence of both investors and consumers, Daco told CBS News. Government shutdowns are not uncommon in the US: Since 1980, the country has experienced 14 such events, with the longest shutdown lasting 34 days from December 2018 to January 2019, as reported by the Bipartisan Policy Center. These occur when Congress fails to pass either a full budget bill or a temporary resolution to fund the government for the upcoming fiscal year, which begins on October 1. While essential services like Social Security, Medicare, and Medicaid continue to be provided, many other government activities are frozen during a shutdown. This results in a significant number of federal employees being furloughed without pay. While some affected employees may later receive back pay, others could face financial challenges if their paychecks are suspended. The direct economic damage primarily affects government employees and federal contractors. Additionally, delayed government procurement of goods and services could negatively impact the broader economy. In times when sectors like the labor market are already struggling, such a shutdown could further undermine confidence in the economic situation, notes Daco. Monetary decisions could also be affected by such a shutdown, as critical economic data, such as the October 3 labor market report, might face delays. This situation would come at an especially inopportune time for an already stagnant labor market.