The 2025 (FY2026) Government Shutdown: Economic Effects

The federal government experienced a funding gap beginning on October 1, 2025—the start of FY2026—and ending when the Continuing Appropriations, Agriculture, Legislative Branch, Military Construction and Veterans Affairs, and Extensions Act, 2026 (P.L. 119-37), was signed into law on November 12, 2025. This funding gap resulted in a “government shutdown” and the furlough of federal employees who were not excepted. The effect of a federal shutdown on the economy depends on its scope and duration. The scope depends on two factors—the proportion of appropriated programs and agencies whose funding has lapsed and the extent that the President “excepts” programs or agencies from the shutdown. Both factors will vary between historical shutdowns, making economic comparisons difficult. In the 2025 shutdown, funding lapsed for all appropriated programs and agencies—CRS could not locate any authoritative information on the total number of programs and agencies that were excepted—and the shutdown lasted for six weeks. P.L. 119-37 provided for all federal employees to be retroactively paid as if they had been at work for the shutdown period. The 2025 shutdown reduced both total supply (production) and total demand (spending). It reduced total supply because furloughed government workers could not contribute to the production of government output, and it reduced total demand because certain government purchases of private sector goods and services could not be made. Because federal workers were paid retroactively and government purchases resumed once the shutdown ended, the reduction in demand was temporary and will be reversed once delayed purchases are made. The reduction in supply was mostly unrecoverable (as lost working hours cannot be made up), but it was a one-time effect that ended when work resumed. Because the shutdown occurred in the first half of the fourth quarter, with roughly seven weeks remaining in the quarter for agencies to catch up, the fall and subsequent rise in government spending may largely cancel out within the fourth quarter of 2025. For that reason, the combined direct and indirect effects of the shutdown on gross domestic product (GDP) are not expected to have a large long-term impact on the economy. The Congressional Budget Office estimated that by the first quarter of FY2027, the cumulative effects of real GDP of a six-week shutdown would be a loss of $11 billion—less than 1% of GDP. Similarly, various outside estimates project a modest effect. For example, the Federal Reserve expects GDP growth to be one percentage point lower in the fourth quarter of 2025 and one percentage point higher in the first quarter of 2026. Federal government employment fell by 162,000 in October and by 6,000 in November, although furloughed employees who are retroactively paid are counted in the data as employed. The decline in October was largely as a result of federal employees who had accepted deferred resignation offers coming off payrolls and unrelated to the shutdown. An alternative measure of employment and unemployment that would likely have counted furloughed workers as unemployed for the period of furlough was not conducted in October as a result of the shutdown. The shutdown resulted in the delayed release or permanent cancellation (such as the unemployment rate for October) of key economic data, making it more difficult to assess the economic effects of the shutdown.