Shutdown furloughs will permanently cost the economy at least $7 billion, CBO says

Forcing a large swath of the federal workforce not to work for going on a full month is having significant and lasting impacts on the economy, according to a non-partisan legislative branch review, causing a loss of at least $7 billion dollars from the gross domestic product. 

That figure would grow to $11 billion if the shutdown lasts another two weeks or $14 billion if it were to last until Nov. 26, the Congressional Budget Office found in a report on Wednesday. Unlike many other economic impacts of the shutdown, CBO noted the losses accrued from employees not conducting their normal work cannot be recovered. 

“In CBO’s assessment, the shutdown will delay federal spending and have a negative effect on the economy that will mostly, but not entirely, reverse once the shutdown ends,” CBO said. 

Most federal employees are currently either furloughed and not working or excepted, meaning they are working only on the promise of retroactive pay. Because all of those employees will receive back pay—CBO assumed furloughed workers would receive delayed compensation despite the Trump administration’s insistence that it does not have to enforce a law that requires it—the loss of economic activity that stems from employees not receiving paychecks will mostly be reversed when the government reopens. 

Already, CBO estimated, GDP is likely to dip by about 1% in the current quarter relative to expectations if no shutdown had occurred. It will then pick back up by 1.4% in the next quarter, according to the analysts’ estimates, and then slowly taper back toward normal expectations. 

The most permanent impact of the shutdown, CBO said, would stem from the output lost from the weeks federal employees spent not working that could never be recovered. That lost productivity, the agency said, will have a permanent impact on the U.S. economy. 

Federal employees have so far missed a cumulative $9 billion in paychecks, the analysts found, including about $5 billion from those still working. If the shutdown were to last another four weeks, the total figure would climb to $23 billion. 

CBO acknowledged spending habits from federal employees could still be altered by the shutdown even once they are made whole. 

“How federal employees and contractors respond to the delay in compensation is uncertain,” CBO said. 

Agencies have also so far delayed spending on $24 billion in goods and services, though CBO said that spending will eventually go out the door. 

CBO followed legal analysts, congressional Republicans and many others who have dismissed the Trump administration’s argument that back pay is not guaranteed for furloughed workers. In federal court on Tuesday in a case regarding layoffs, a Justice Department attorney also contradicted the White House’s argument. 

“We're dealing with a class of employees who are furloughed, who are not working on specific government actions,” said Michael Velchik, the Justice lawyer. “They're incurring future obligations to the federal taxpayer, who will then have to pay back pay wages for these individuals who are not working.”