US federal shutdown adds strain despite modest GDP hit: S&P Global

The latest US federal government shutdown is expected to shave only a modest amount from growth, but uncertainty is rising as federal spending is curtailed, and confidence weakens.

GDP growth could be trimmed by 0.1–0.2 percentage point for every week the government remains closed, though indirect costs could deepen the effect, according to S&P Global Ratings Economics.

The analysis is based on past shutdowns, which typically reduce government output by lowering hours worked. Federal employees are later paid retroactively, meaning part of the lost output is recovered. The 2013 shutdown under President Barack Obama reduced quarterly GDP by 0.3 percentage point, while the 35-day shutdown under President Donald Trump in 2018–19 permanently erased $3 billion from the economy. This permanent loss represented roughly 0.02 per cent of the total projected GDP for 2019.

This time, the Office of Management and Budget has instructed agencies to prepare for potential permanent job cuts, marking a departure from past furloughs that were fully restored. Nearly 100,000 federal jobs have already been eliminated through recent buyouts, adding to economic headwinds of low hiring and sticky inflation.

Shutdowns affect about 26 per cent of federal spending, shutting down ‘non-essential’ services and furloughing thousands of workers, while mandatory programmes such as Social Security and Medicare continue. Disruptions include delays in small business loans, food safety inspections, and the closure of national park facilities.

The most immediate risk comes from delayed economic data releases. Reports such as the August construction spending survey and the October 3 jobs report are expected to be postponed, clouding visibility for the Federal Reserve, which has signalled two more 25-basis-point rate cuts this year and another 50-basis-point easing in 2026.

While the shutdown is unrelated to the debt ceiling—the borrowing limit was raised by $5 trillion in July—it underscores political gridlock.

While much of the output may later be recovered, productivity lost during the shutdown is never regained, and with potential job cuts on the table, this shutdown may carry longer-lasting consequences, S&P Global said.

ALCHEMPro News Desk (HU)