Patrick D. from Raleigh, NC asks: Hey Mitch, with the government shutdown now dragging into its fourth week, I’m seeing headlines saying it could amount to tens of billions of dollars in economic hit. Could this finally be the one that hobbles the economy and the stock market in a real way?
Mitch’s Response:
Thanks for writing, Patrick. That’s a fair question and a legitimate concern. Just last week, the Congressional Budget Office (CBO) released estimates indicating the shutdown could cost the U.S. economy up to $14 billion if it stretches to eight weeks, with at least half that already lost through furloughed federal workers and delayed government services.1
That sounds like a big number, and it is certainly very meaningful for the people and businesses directly affected. But in context, it’s actually very small relative to America’s $28 trillion economy. Even the worst-case estimate would shave just around 0.06% off GDP, hardly enough to derail the broader private-sector expansion.
Historically, government shutdowns are disruptive, but they’re not disastrous. Essential operations, such as Social Security payments, Medicare, and national security continue. Federal employees eventually receive back pay, and much of the temporary economic drag reverses once government operations restart. While some lost output is permanent (think missed trips to national parks or delayed small-business activity around federal offices), history shows the economy makes up most of it quickly.
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Stocks tend to see through shutdowns, too. Since the 1970s, there have been more than twenty funding lapses, and in nearly every case, equities either treaded water or rose once the government reopened. The last prolonged shutdown, in late 2018 and early 2019, lasted 35 days and markets rallied throughout, rising more than 10% over the same stretch. Investors recognize shutdowns are temporary political squabbles, not lasting economic shocks.
That pattern appears to be holding. Despite the noise, markets have remained broadly calm this time around. Corporate earnings are solid, consumer spending is steady, and most private economic data point to continued, if slower, growth. Those private-sector forces, not temporary gaps in government spending, drive the U.S. economy’s long-term trajectory.
So while it’s never pleasant to see public workers furloughed or federal programs paused, markets are right to look through it. The math just doesn’t add up to something systemically threatening. If anything, the greater risk here is sentiment, in my view. A prolonged impasse could heighten investor fatigue and spark short-term volatility. But that’s usually an opportunity, not a warning sign. Once funding is restored, normal activity resumes, and attention quickly shifts back to fundamentals like earnings and growth.
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Disclosure