Since 01.10.2025 the United States of America (USA) are in federal shutdownafter failure to vote funding for the new financial year.
About 750,000 federal employees in the US for 4 days lasting Shutdown have been suspended or working freely, while analysts as well as state -owned estimates converge that the costs are increasing geometrically as the closure is extended.
Historical evidence shows that although part of the activity is recovered with reopening (eg retroactive wages), a section remains permanently lost and this tends to increase as the closure extends. In the 2018-2019 Shutdown, the US Congress Budget Office recorded a definitive loss of national product of about $ 3 billion even though the state has reopened and paid retroactively. Now, short-term estimates place the damage around 0.1-0.2 of GDP percentage percentage per week (about $ 7 billion average), but these average prices tend to get worse as long as the duration overflows, precisely because the effects are accumulated and the part can be reduced.
How is the actual economy affected
The first line of impact is the delay in federal spending as contracts, grants and payments “freeze” or move. Part of the damage is recovered when the state is opened, but permanent losses are historically recorded.
The labor footprint is immediate with hundreds of thousands of employees being suspended or served without a salary, and if the shutdown pulls, the risk of secondary impact on employment in the private sector in contractors and suppliers increases. On a month’s horizon, the White House estimates a decline in tens of billions of dollars, slowing demand for rent, loans and basic household expenses.
How do markets and houses react?
Markets so far have relative calm, with the key indicators holding high levels, but this does not negate the dangers of a prolonged closure. The biggest problem for investors and monetary policy is to delay the publication of critical macroeconomic elements (employment, inflation, retail sales), which makes it difficult for the Fed’s next decision, forcing it to rely more on private sources. The reliability deficit, however, can increase variability and affect markets if uncertainty is extended.
US credit profile also comes into the equation. On 16.05.2025 Moody’s downgraded US evaluation to AA1, following S&P’s 2011 and Fitch in 2023. Since then, every new episode of institutional dysfunction has enhanced investment risk. Scope’s European House warns that Shutdown is an additional negative factor for the credit profile, especially if it lasts. A prolonged closure could increase the cost of borrowing the State and supply a new round of debate on the viability of deficits.
How does the state mechanism work?
Regarding the individual functions of the federal state, the Federal Transport Security Service and the Civil Aviation Authority continue with security personnel, so flights do not stop, however, labor without salary and limited hours may lead to delays if the absence increases.
In the welfare state, key benefits such as social security payments continue, but applications and individual services are delayed. Impact are also expected on local economies around national parks and museums, which limit their functions.
It should be noted that the federal government has “frozen” specific funding flows to states and projects, a move that burdens the budgets of infrastructure and energy in large metropolitan areas. If Shutdown is extended, the pressure on the state authorities will increase temporary costs or delay projects, with secondary impact on transport and investment.
What are the scenarios for the sequel
In the “quick” solution of one week, the immediate blow to growth is estimated to remain manageable and part of it will be recovered after the opening. As Reuters estimates, in more than two or three weeks, cumulative loss in GDP can reach 0.3–0.6 percentage points, with a broader blow to households and business confidence. In an extreme quarter scenario, the incidence will be strong, with estimates of up to 2–2.4 percentage points in this quarter, especially if it coincides with delaying basic statistics and more defensive attitude of the Fed.
In any case, the financial footprint will be judged by the duration. Historically, Shutdowns have limited permanent losses, but the combination with already increased public debt, degraded credit rating and political uncertainty makes this year’s context more sensitive to growth and markets.