Will the federal government shutdown last long enough to hurt the U.S. economy?

• Mark Zandi, chief economist for Moody's Analytics. said the impact on the economy and financial markets will be limited if the federal government shutdown lasts just a week or two.
• Many federal employees will not be paid during the shutdown and household budgets will be squeezed. The U.S. Senate Federal Credit Union is offering a federal shutdown relief loan.

How much economic chaos could the shutdown of the federal government trigger?

We’ll know soon enough if the shutdown that began at 12:01 a.m. Wednesday, Oct. 1, drags beyond a few more days. It’s all about duration – and any kinks already in place.

Wall Street opened relatively calmly Wednesday, some nine-and-a-half hours into the shutdown. The Dow Jones Industrial Average was trading at 46,356.25 points, down 41.64 points or 0.09%, shortly after 9:31 a.m. Oct. 1.

By 9:40 a.m., the Dow was trading at 46,432.62 points, up 34.73 points or 0.07%. But the Dow was losing ground and dropping back again shortly before 10 a.m.

The Dow was up 88.82 points or 0.19% and trading at 46,486.71 points shortly before 3:30 p.m. Oct. 1 – a half hour before the market closed at 4 p.m. 

The Dow closed at 46,441.10 points, up 43.21 points or 0.09% – breaking a new record on the first day of the federal government shutdown Oct. 1. 

“If the shutdown lasts a week or two, I don’t think it will have a material impact on the economy and financial markets,” said Mark Zandi, chief economist for Moody's Analytics.

That’s assuming, he said, that the Trump administration doesn’t end up firing government workers during a shutdown, as officials have said they would. If more people are fired, analysts worry that the economic impact would be much deeper.

How much could a shutdown hurt in the days ahead?

If a budget resolution isn’t reached quickly – and a shutdown lasts a month or two, we’re talking about a totally different outlook.

“The heightened uncertainty and mounting concerns regarding the nation’s governance and safe haven status this would create would be difficult for stock and bond investors to ignore,” Zandi said.

Wall Street and Main Street don’t tend to do well with long stretches of uncertainty.

Still, haven’t we been here before? And we did OK, didn’t we? Yet, is the U.S. economy more vulnerable now than during previous shutdowns, as some consumers are more on edge?

On the one hand, we have faced the possibility of a government shutdown fairly often in our lifetimes. A shutdown, for example, was narrowly avoided back in 2023 just hours before the Sept. 30 deadline.

But you have to go back nearly seven years to the last time Congress couldn't reach a deal, and we entered a time of similar uncertainty.

This year's shutdown seemed inevitable with the White House running a "Government Shutdown Clock" online that is adding up the hours, minutes and seconds of 2025 shutdown. President Donald Trump's White House site carries the banner: "Democrats Have Shut Down the Government."

The most recent – and longest – shutdown of the federal government hit Dec. 22, 2018, and lasted through Jan. 25, 2019.

Long, yes, but the economy and the stock market turned out OK after the shutdown seven years ago during the first Trump administration. The last federal shutdown was viewed as a "partial" shutdown because Congress had already enacted a handful of spending laws.

A government shutdown occurs when Congress fails to pass spending legislation but not all federal services stop.

How did stocks do during the 2018-19 shutdown?

The last go-round didn't cause a panic on Wall Street.

The Standard & Poor’s 500 index was down 7.1% a week before the 2018-19 shutdown began, according to data from CFRA Research. The S&P 500 index fell 2.7% on day one of the shutdown that dragged into 35 days. The S&P 500 rose 10.3% the entire lengthy shutdown. The index rose an additional 4.8% in the 30 days after the shutdown ended.

"Most on Wall Street are cynical about the impact of government shutdowns,” said Sam Stovall, CFRA Research chief investment strategist.

Stovall says he likes to view government shutdowns as “more of a headline event than a bottom-line event.”

While the news is certainly worth watching, he said, the economic impact on retirement savings and other investments tends to be limited.

This shutdown began on a Wednesday. But Stovall noted that 12 of the last 21 shutdowns took place on a weekend – a Friday, Saturday or Sunday. The 11 shutdowns since 1984 only lasted a median of four days, Stovall said.

New York’s weekend tourists, he said, tend to face more challenges than Wall Street traders who are dealing with a Monday through Friday grind. An extended shutdown, after all, can lead to flight delays and longer waits at airports.

The financial fallout has tended to be much less in the early moments after a shutdown as Wall Street traders are more accustomed to government shutdowns, Stovall said.

“No one knows for sure how Wall Street will react this time, but I think no differently than in the past,” Stovall said.

Investors are more focused, he said, on the monthly jobs report that was to be released Oct. 3 and whether the Fed will cut rates in October and December. The Fed's next meeting is Oct. 28 and Oct. 29, and Trump has been aggressively lobbying for the Fed to cut short-term interest rates yet again.

If the government remains shut down, Stovall said, no jobs report will be issued as the U.S. Department of Labor will delay releases of economic data.

In that case, Wall Street traders will be looking at other data that’s available, including the recently issued slightly better-than-expected Job Openings and Labor Turnover Survey and weaker-than-expected Consumer Confidence reports.

Everyday households will focus on other issues, such as: Will I get paid on time? How much money might I lose if the shutdown lasts into November or December?

Some things will continue as usual: Social Security payments are expected to arrive on time. Military personnel, air traffic controllers, and other essential personnel must work but may not be paid on time.

Hundreds of thousands of federal workers will be furloughed without pay. Many will not be paid during the shutdown and household budgets will be squeezed.

The U.S. Senate Federal Credit Union, for example, is offering a federal shutdown relief loan of up to $5,000 with no payments for 90 days. We saw credit unions offer similar types of loan relief to UAW workers on strike at the Detroit Three automakers in 2023.

Fortunately, many federal employees hurt by the shutdown will get paid later under a 2019 law that mandates retroactive automatic pay once the shutdown ends, according to details in "Guidance for Shutdown Furloughs" issued in September by the U.S. Office of Personnel Management. The safety net doesn't apply to everyone. Government contractors, unlike direct federal employees, typically do not receive back pay after shutdowns.

Shutdown hits when Dow is breaking records

Overall, the economy has been rolling along. The stock market clearly has been soaring to new heights, giving wealthier households more room to keep spending.

We've seen a record-breaking rally. The Dow Jones Industrial Average broke yet another record on Sept. 30, as the deadline for a shutdown loomed, and closed at 46,397.89 points.

Even so, concern has been building about a potentially precarious jobs picture, given that we've not yet felt the full impact of tariffs. Higher tariffs put pressure on profit margins and can lead to price hikes on many goods, as well as job cuts in some industries.

According to the University of Michigan's Survey of Consumers, consumers increasingly believe that labor market conditions will weaken. About 65% of consumers expect unemployment to rise in the year ahead, up from 57% in July 2025 and 35% a year ago, according to the survey released Sept. 26.

The University of Michigan Consumer Sentiment Index fell to 55.1 in the September survey, down from 58.2 in August and below last September's 70.3.

Matthew Nestler, senior economist for KPMG Economics, noted in a report that the number of job openings stayed flat in August with 7.2 million jobs available nationwide.

Among different sectors, he said the federal government posted the lowest number of job openings – some 77,000 – since February 2018.

“Government job openings have fallen off a cliff since the beginning of this year, despite new hiring plans for Customs and Border Protection,” he wrote in a Sept. 30 report.

The unemployment rate has remained low but the expectation is for slower economic growth.

“Labor demand is falling while labor supply is declining due to curbs on immigration and a rise in retirements,” Nestler wrote.

He noted that a low number of hires continue to be offset by a low level of firings.

“Employers are likely hoarding labor due to supply-side shortages from the shift in immigration policy,” Nestler wrote Sept. 30.

A lengthy government shutdown would only complicate the employment picture, and possibly, further erode consumer confidence – a reality that could give Congress more reason to settle matters, hopefully, well before 35 days.

Contact personal finance columnist Susan Tompor: [email protected]. Follow her on X @tompor.