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Wednesday, November 13, 2013

The FY2014 Government Shutdown: Economic Effects

Marc Labonte
Specialist in Macroeconomic Policy

The federal government experienced a funding gap beginning on October 1, 2013, which ended when the Continuing Appropriations Act (P.L. 113-46) was signed into law on October 17, 2013. This funding gap resulted in a “government shutdown” and the furlough of federal employees who were not excepted; some third-party sources estimated that up to 800,000 federal employees were initially furloughed. The Continuing Appropriations Act also temporarily suspended the statutory debt limit through February 7, 2014. This report discusses the effects of the FY2014 government shutdown on the economy. It also reviews third-party estimates of the effects of the shutdown on the economy, which predicted a reduction in gross domestic product (GDP) growth of at least 0.1 percentage points for each week of the shutdown, with a cumulative effect of up to 0.6 percentage points in the fourth quarter of 2013. The Congressional Research Service does not plan to provide an independent estimate of the economic impact of the shutdown.

The government shutdown had both direct and indirect effects on economic growth. It directly reduced GDP because government spending is a component of GDP. Assuming the funding levels enacted on October 17 were the same as the funding levels that would have been enacted on September 30 had a shutdown not occurred, some spending would be delayed, but not permanently reduced. For example, furloughed federal employees were paid in full, but late. Since the shutdown occurred at the beginning of the quarter, much of the delayed spending may occur before the quarter is over. An example of a potential indirect effect is a reduction in private consumption or business investment because of a decline in consumer confidence, which surveys reported in October. Some indirect effects may be attributable to the debt limit impasse, however, which occurred at the same time as the shutdown.

The Administration has not yet produced an official estimate of how much federal spending was delayed or how many federal workers were furloughed because of the shutdown. The number of private employees laid off or furloughed as a result of the shutdown is also unknown. It will be months before all of the relevant data are released to allow observation of how the shutdown affected the economy. Initial unemployment claims surged during the shutdown. For technical reasons, the shutdown will have no effect on the more frequently cited job growth figure, but will raise the unemployment rate in October.

Most of the information available at this time are predictions by professional forecasters, many of which were made before the shutdown had ended. These estimates are subject to error and uncertainty. Overall, most forecasters believe that the effects of the shutdown on the economy will be small relative to the overall economy because it ended after 2½ weeks, it only affected a subset of federal spending, and it generally delayed rather than eliminated federal spending. The economic effects of the shutdown were unevenly distributed across regions, industries, or individuals, however. Where detail was provided, most forecasters did not factor in any multiplier or indirect effects of the shutdown. In that sense, the estimates reviewed can be thought of as a lower bound on the overall effects on economic activity.

This report does not provide background on or explanation of recent or historical shutdowns or funding gaps.

For information about government shutdowns, see CRS Report R43250, InBrief: CRS Resources on the FY2014 Funding Gap, Shutdown, and Status ofAppropriations, by Justin Murray and CRS Report RL34680, Shutdownof the Federal Government: Causes, Processes, and Effects, coordinated by Clinton T. Brass.

Date of Report: November 1, 2013
Number of Pages: 11
Order Number: R43292
Price: $29.95

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