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The Government Shutdown Has Lasting Effects

For the first time since December 15, 1995, our government experienced a partial shutdown. What was the cause of the shutdown? The answer lies in the federal budget. President Barack Obama and Congress failed to reach compromise on a federal budget before the September 30, 2013 deadline. This occurrence, however, is not unique. In fact, every government shutdown since 1981 has occurred during a funding gap.

But what does all of this mean? What are the economic effects of the government shutdown?

Well let’s start with the topic that probably affected you or someone you know: furloughs. Based on employee furlough days, the government shutdown of October 2013 was the most significant to date. Combined employee furlough days reached 6.6 million days. The Department of Defense had the most employee furlough days with 1.6 million days. The 850,000 employees furloughed per day represented 40% of the civilian federal workforce.

The government shutdown also took a toll on small businesses. During the government shutdown, loans worth $140 million to 700 small businesses were halted. Small businesses that contract with the Department of Defense also took a hit. Compared to the same period in the previous year, contracts with the Department of Defense were cut by one-third and spending was down 40 percent. These cuts caused some small businesses to make layoffs and take other cost-reducing measures.

On the macro level, Gross Domestic Product (GDP), consumer confidence, and job creation declined.  Fourth quarter projections expect GDP to taper between 0.2-0.6 percent, equivalent to 2 to 6 billion dollars of output. The government shutdown weighed on consumers as well. According a survey conducted by Goldman Sachs, two out of five people said that they would cut spending due to the shutdown . Also, private-sector job creation experienced a loss. The combined effects of the government shutdown and debt limit brinkmanship caused 120,000 fewer jobs to be created.

Watch out for these upcoming deadlines:

  • Continuing Resolution deadline- Jan. 15, 2014
  • Debt Ceiling raised until- Feb. 7, 2014

Written by Herbert Belton

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