What a Government Shutdown Could Cost

What a Government Shutdown Could Cost

Kevin Lamarque / REUTERS

If the government does shut down on Saturday, Goldman Sachs says the economic costs would likely be minimal:

“A government shutdown has a much more modest impact than the term might suggest,” Goldman economist Alec Phillips wrote in a note Thursday. “First, only a portion of the government actually shuts down when spending authority lapses. In prior experiences, about 40% of the federal workforce, or about 800,000 workers, have been furloughed without pay during shutdowns. The remaining 60% is considered exempt because they perform duties related to health, safety, security, or financial operations, among other activities.”

Phillips estimates that, because of the furloughs, every week a shutdown lasts would reduce GDP growth by about 0.2 percentage points on an annualized basis — and that loss would be reversed the following quarter. “If a shutdown lasted several weeks, the weekly effect might rise slightly as federal contractors and procurement could also begin to be affected,” he adds.

Congress has always voted to retroactively pay federal workers for the time they were forced to miss, so personal incomes wouldn’t take a lasting hit. “That said, a prolonged shutdown could dampen consumer sentiment,” Phillips warns. “For example, the Conference Board and University of Michigan consumer sentiment surveys declined by an average of 7 points in the month of the three previous major shutdowns (November 1995, December 1995-January 1996, and October 2013) and gained about half of the decline, on average, the following month.”