Government Shutdown: A Detailed and Eye-Opening Visual Guide

With Congress barreling toward a government shutdown, many Americans are wondering how it could affect them. Heres a guide to what you can expect.

What is a government shutdown?

What happens during a government shutdown?

Explanation: Government shutdowns occur when Congress fails to approve funding for the federal government before the commencement of the new fiscal year on October 1. Congress is required to pass the 12 appropriation bills that comprise the discretionary spending budget and determine the funding allocations for federal agencies each year.

If lawmakers do not pass all or some of the appropriation bills, numerous government operations will cease, leading to a complete or partial shutdown of the government until Congress takes action. However, essential government functions will still be carried out.

Every federal agency devises a contingency plan that specifies which functions will be maintained and which will be suspended during a shutdown. The plan also determines the number of employees who will continue working and those who will be placed on furlough until the shutdown is resolved.

What it means for you

Because many federal workers are off the job during a government shutdown, many services are stopped or slowed, disturbing the day-to-day life for many Americans.

A potential shutdown could impact you in the following ways.

What it means for government workers

When a shutdown occurs, millions of federal employees and military service members do not get paid until it ends.

Essential employees, such as those in roles that safeguard public safety or national security, continue to work. This category traditionally encompasses federal law enforcement, air traffic control, and the US postal service.

Non-essential employees, on the other hand, are placed on temporary suspension or furloughed.

Both groups will need to utilize their savings or explore alternate methods to make their money last, not just until the shutdown concludes but also until they receive their back pay. The number of affected workers will vary depending on whether the shutdown is complete or partial. If certain appropriation bills are successfully passed in a timely manner, the corresponding federal agencies will be granted approved funding and will continue to function normally, resulting in only a partial shutdown.

During the previous government shutdown in 2018-19, approximately 420,000 federal employees had to work without receiving any pay, while an additional 380,000 were placed on temporary leave without pay. However, the scale of these figures can increase significantly depending on the specific agencies that are affected.

What it means for the economy

Government contractors are in a more unfavorable situation. In contrast to federal workers, contractors do not have the assurance of receiving back pay once the government reopens. The contractor community is vast, encompassing millions of individuals and businesses, including those serving organizations such as NASA, the Department of Homeland Security, Federal Aviation Administration, and other federal agencies. These contractors offer a wide range of services, including IT support and infrastructure repairs.

Government shutdowns can have significant economic consequences on a national scale, causing hindered growth, uncertainty, and various costs. These costs include increased unemployment, reduced gross domestic product (GDP) growth, and higher borrowing costs. According to estimates by EY, each week of a government shutdown could result in a $6 billion loss for the US economy and a 0.1 percentage point decline in GDP growth in the fourth quarter of 2023.

Furthermore, a shutdown creates ambiguity regarding the state of the US economy. When this occurs, the Bureau of Labor Statistics ceases to release data such as important inflation and unemployment figures. This lack of information makes it difficult for the Federal Reserve and investors to accurately assess the economy and make crucial decisions. These decisions are particularly crucial at this time as the Fed is actively striving to combat high inflation.

During previous shutdowns, the operations of the government have also impacted businesses throughout the country. Two significant loan programs operated by the Small Business Administration, which provide approximately $200 million daily to small and midsize US businesses, were temporarily halted. Furthermore, the progress of new businesses was hindered. In 2019, the Securities and Exchange Commission (SEC) experienced delays in its staffing, resulting in a slowdown of pending company mergers. Additionally, the SEC's suspension of reviewing and approving filings led to a pause in initial public offerings.