Government shutdown impacts economy, services
The U.S. government officially entered a shutdown just after 12 a.m. on Wednesday, October 1, following a bitter stalemate in Congress over funding for the new fiscal year. Lawmakers were unable to pass either the 12 appropriations bills necessary to fund federal operations for a full year or a short-term continuing resolution to maintain current funding while negotiations continued.
House Speaker Mike Johnson blamed Democrats for holding out, insisting on extending Affordable Care Act tax credits that aid millions of Americans in paying for health insurance. Democrats, led by House Minority Leader Hakeem Jeffries, countered that Republicans were refusing to protect affordable coverage. Vice President JD Vance predicted the shutdown, saying, “I think we’re headed to a shutdown because the Democrats won’t do the right thing.”
Both Republican and Democratic proposals failed in the Senate during last-minute votes on Tuesday. A Democratic-backed bill that would have extended ACA subsidies and reversed Medicaid cuts, and a Republican stopgap measure funding the government for seven weeks, both fell short. White House Office of Management and Budget Director Russell Vought instructed federal agencies to “execute their plans for an orderly shutdown.”
Senate Minority Leader Chuck Schumer urged Republicans to negotiate, saying, “We want to sit down and negotiate, but the Republicans can’t do it in their partisan way, where they just say it’s our way or the highway.” Congress is expected to vote again on Wednesday, likely revisiting the same measures.
The Congressional Budget Office estimates around 750,000 federal employees will be furloughed in the initial days, at a daily payroll cost of roughly $400 million. The shutdown marks the first in nearly seven years and threatens to disrupt a wide range of federal services, from healthcare administration to regulatory enforcement, as Americans brace for the effects of a political deadlock on Capitol Hill.
21st US government shutdown underway
The US government entered its 21st shutdown since the 1977 fiscal year, following failed negotiations over funding. The last shutdown, during Trump’s first term from December 2018 to January 2019, lasted 35 days and caused roughly $3 billion in lost economic activity, with many federal workers struggling to afford childcare or commuting costs. Agencies have been slow to release contingency plans, but some warned of potential impacts.
Senate votes on both Republican and Democratic stopgap funding measures are expected Wednesday, with the GOP bill proposing funding through 21 November. Senator Thune expressed hope the shutdown could end quickly if a small number of Democrats join Republicans to pass the nonpartisan funding measure. Most previous shutdowns lasted only a few days.
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Federal workers face unpaid leave, financial strain
The government shutdown directly affects federal employees, dividing them into furloughed and excepted categories. Furloughed workers, considered non-essential, are sent home without pay, while essential personnel—including law enforcement, air traffic controllers, and active-duty military—continue working but also go unpaid.
Although Congress has guaranteed retroactive pay for furloughed employees once operations resume, families living paycheck to paycheck may face immediate financial strain, struggling with mortgage, utility, and grocery payments. Service members similarly receive back pay after funding is restored. The longer the shutdown persists, the greater the financial pressure on both furloughed and excepted employees, highlighting the personal impact of political deadlock on everyday Americans.
Essential operations to continue
A government shutdown does not halt all federal operations, but significantly disrupts services. Certain activities, such as small business loan applications, routine food and drug inspections, and some passport and visa processing, are suspended. Social Security and veterans’ services continue at reduced capacity, while TSA agents and air traffic controllers work unpaid, potentially causing longer airport lines. National parks and federally funded museums may close or scale back operations. Essential services like the U.S. Postal Service, Medicare, and Social Security benefits remain unaffected. Economic effects can be substantial, as the 2018–2019 shutdown cost $11 billion, with $3 billion permanently lost, impacting federal workers, contractors, and small businesses relying on government loans or permits.
Impact on the economy
As per Associated Press report, Phillip Swagel, director of the Congressional Budget Office, said a short shutdown doesn’t have a huge impact on the economy, especially since federal workers, by law, are paid retroactively. But “if a shutdown continues, then that can give rise to uncertainties about what is the role of government in our society, and what’s the financial impact on all the programs that the government funds.”
“The impact is not immediate, but over time, there is a negative impact of a shutdown on the economy,” he added.
Markets haven’t reacted strongly to past shutdowns, according to Goldman Sachs Research. At the close of the three prolonged shutdowns since the early 1990s, equity markets finished flat or up even after dipping initially.
A governmentwide shutdown would directly reduce growth by around 0.15 percentage points for each week it lasted, or about 0.2 percentage points per week once private-sector effects were included, and growth would rise by the same cumulative amount in the quarter following reopening, writes Alec Phillips, chief U.S. political economist at Goldman Sachs.