New analysis reveals government shutdown’s impact on economy

First on Fox: The US economy could lose up to $14 billion due to the ongoing government shutdown, a new analysis said Wednesday.

The nonpartisan Congressional Budget Office (CBO) released new projections showing that the shutdown is likely to have a temporary negative impact on the U.S. economy, although gross domestic product — adjusted to remove the impact of inflation — is expected to take a modest permanent hit.

It’s the 29th day of the government shutdown, and Democrats and Republicans appear no closer to reaching an agreement on ending the crisis than they were when it began on October 1.

House Budget Committee Chairman Jody Arrington, R-Texas, asked the Congressional Budget Office to conduct an analysis earlier this month on how the shutdown would affect the U.S. economy.

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The office sent Arrington an initial response on October 17, saying that “the government shutdown will have negative impacts on the economy, although many of these impacts will be temporary.”

“The impacts will increase with a longer lockdown period,” the preliminary analysis said.

The latest analysis looks at three scenarios: a four-week lockdown ending on October 29, a six-week lockdown ending on November 12, and an eight-week lockdown ending on November 26.

“In the Congressional Budget Office’s assessment, the shutdown will delay federal spending and have a negative impact on the economy that will mostly, but not completely, reverse once the shutdown ends,” the analysis said.

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However, the Congressional Budget Office projects that real GDP will be lower in the fourth quarter of 2025 than it would have been.

“Depending on its length, the government shutdown will reduce annual real GDP growth in that quarter by 1.0 to 2.0 percentage points. After the shutdown, real GDP will be temporarily higher than it would have been otherwise,” the Congressional Budget Office said.

“Although most of the decline in real GDP will eventually be recovered, the Congressional Budget Office estimates between $7 billion and $14 billion (in 2025 dollars) will not be recovered.”

The Congressional Budget Office noted that some variables, including the responses of the Trump administration and federal employees affected by the shutdown, still mean that the ultimate effects are yet to be seen.

Rep. Brendan Boyle, left, ranking member of the House Budget Committee, speaks with committee chairman Rep. Jody Arrington during a markup meeting on Capitol Hill in Washington, Sept. 20, 2023. (Anna Moneymaker/Getty Images/Getty Images)

“Democrats are playing politics, and the American people are paying the price. Even the independent, nonpartisan Congressional Budget Office has confirmed that the economy will lose 1% in growth due to Schumer’s shutdown. For hardworking families, this means higher unemployment, lower wages, and less money in their pockets,” Arrington told Fox News Digital.

“While Democrats believe that ‘every day gets better for them,’ the same cannot be said for the American people. In fact, a six-week shutdown would mean growth would be 1.5 percentage points lower, an eight-week shutdown would reduce growth by 2.0 percentage points, and it would only get worse from there.”

However, Democrats blamed Republicans for refusing to negotiate with them on a bipartisan solution to end the shutdown and make changes they say would save health care for millions of Americans.

The Congressional Budget Office noted that although many of the economic impacts of the government shutdown will be temporary, “those impacts will intensify the longer the shutdown lasts.”

The analysis also pointed to three factors behind a potential decline in economic activity at the end of 2025, due to the shutdown: “Fewer services will be provided by federal workers, federal spending on goods, services, and SNAP benefits will be temporarily lower, and a temporary decline in aggregate demand will lead to lower private sector output.”

“Real GDP will rebound when federal funding resumes, with most of the lost production being made up for in the future. The decline in output caused by the time furloughed employees did not work will not be recovered,” the analysis said. “In all three scenarios analyzed by the agency, the lockdown leads to a temporary economic slowdown. Real GDP is lower in the fourth quarter of 2025 than it would have been otherwise; the decline in economic activity will intensify the longer the lockdown lasts.”

However, most of this slowdown is likely to be reversed, due to “a rebound in federal spending on employee compensation, purchases of goods and services, and SNAP benefits that occurs after the shutdown ends.”

The government shutdown is already the second-longest in history after the 2018-19 shutdown during President Donald Trump’s first term, when Democrats and Republicans were at loggerheads over funding for Trump’s border wall.

That confrontation lasted 35 days, only six days longer than the current financial battle.

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Obamacare has emerged as the deciding divide this time around, with Democrats vowing to reject any funding deal that doesn’t extend Affordable Care Act subsidies that were boosted during the COVID-19 pandemic. These subsidies are scheduled to expire at the end of 2025 without congressional action.

Republican leaders have indicated they are willing to have discussions about extending Obamacare subsidies — albeit with significant reforms — but they refuse to pair it with an unrelated federal funding bill.

The GOP-led plan, which passed the House on Sept. 19, would keep the government funded through Nov. 21 at levels roughly similar to fiscal year 2025. The measure is called a continuing resolution (CR) and is intended to give negotiators time to reach a long-term agreement on fiscal year 2026 funding.

But the GOP failed 13 times in the Senate, where many Democrats need to reach the 60-vote threshold to overcome a filibuster.