As the shutdown drags on, here’s how it can drag down the economy

By Alicia Wallace, CNN

(CNN) — The federal government shutdown has lasted all month and is on pace to become the longest on record.

While history has shown that the economy typically rebounds from a shutdown within a couple of months, each day it drags on brings a greater risk that the economy won’t just bend, but will start to break — and rupture livelihoods in the process, economists say.

“The economy is fragile and, therefore, something like a government shutdown could become a bigger problem a lot faster than people might think,” said Mark Zandi, chief economist at Moody’s Analytics.

The negative effects start to build on themselves very rapidly and the collateral damage becomes more widespread, said Diane Swonk, chief economist at KPMG.

“That’s kind of like a snowball rolling down a hill, gathering momentum and mass,” she said.

Predicting something that has becoming increasingly unpredictable is an impossible task, but here’s a look at how the shutdown could ripple through critical avenues of everyday life.

Jobs

Prior to the shutdown, the US job market was already on its back.

It’s been a low-hire, low-fire, low-churn environment. Employers, frozen by high economic and policy uncertainty, have held off making investments and adding workers. Some businesses have used this period to test the waters on artificial intelligence and other technologies – in turn putting to the test that “low-fire” descriptor by announcing mass layoffs in recent weeks.

“We’re not creating any jobs of consequence, really,” Zandi said.

Considering that backdrop, the tepid job gains can potentially turn into deeper job losses if safety nets become frayed, more paychecks are missed by federal workers and contractors, and spending pullbacks reverberate through the private sector, causing businesses to lay off workers or shut down, he said.

Rate cuts and some greater clarity around trade deals and tariffs were supposed to fuel a rebound in hiring heading into 2026, noted Nicole Bachaud, labor economist at employment site ZipRecruiter.

“However, tariffs are projected to dampen consumer spending before year’s end, and a prolonged shutdown could further erode consumer confidence,” she wrote in a note earlier this month. “This would delay hiring plans that might otherwise materialize, keeping the labor market stuck in place.”

US consumer confidence during October dipped to its lowest level since April, when President Donald Trump announced a massive suite of steep tariffs on imported goods, according to The Conference Board’s latest index released this week.

Health care and the care economy

The expiration of the enhanced premium subsidies for Affordable Care Act coverage is at the crux of the Congressional stalemate to fund the federal government and end the shutdown.

Democrats are demanding that a short-term funding package include an extension of the enhanced assistance, while Republicans say they won’t negotiate until the government reopens.

Open enrollment starts on November 1, and the more than 22 million Americans who use the federal health insurance marketplace are expected to see their monthly premium leap by 26% on average, according to a KFF analysis.

Also on November 1, more than 65,000 children and families in 41 states and Puerto Rico are at risk of losing access to Head Start programs, which provide early education and child development resources to low-income households.

Any center closures could quickly increase financial hardship for lower-earnings families. Child care disruptions have been shown to negatively impact labor force participation (particularly for women), productivity growth and overall economic growth.

Spending

The lengthier the shutdown, the higher the probability for a greater drag on overall economic activity, said Joe Brusuelas, RSM US chief economist.

“And this isn’t economic activity that is just deferred or delayed, you’re now creating a condition of economic activity that just simply doesn’t happen,” he said.

There’s the job that doesn’t get filled, the trip that doesn’t get taken and the holiday spending that doesn’t occur.

“At some point, things start to break because they’re just not getting done,” added Zandi, of Moody’s Analytics. “When this thing really metastasizes and takes out the broader economy is when it starts to affect confidence – consumer, business, investor confidence – the stock market takes notice and instead of going straight up, it starts to wobble and starts going down.”

If the shutdown continues past Thanksgiving, “there’s no coming back from that quickly,” he said, adding that will cause “damage that’s longer-lasting.”

Consumer spending accounts for two-thirds of US economic activity. It has remained largely resilient, despite massive uncertainty and persistently high inflation.

However, it’s likely done so because of an increasingly bifurcated, or “K-shaped” economy. Wealthy consumers, buoyed in part by strong market gains, are driving more of the spending while lower- and middle-income households are facing increased strain.

Prices and interest rates

A drawn-out shutdown could inject further “crosscurrents” into an already choppy price environment, Zandi said.

On one hand, disruptions to government services and funding could affect trade and supply chains, driving up prices. On the other hand, a weakened economy would mean it’s harder for companies to raise prices, which could help keep overall inflation in check.

“The net of all that, I think, is hard to know,” he said.

Still, the shutdown and its economic fallout could give the Federal Reserve one more reason to continue cutting interest rates, he added.

“The Fed’s putting a higher weight at this point on the weak job market than they are on inflation or financial conditions,” he said. “This [shutdown] would weaken the already fragile job market more.”

The human impact

The shutdown could very well exacerbate those struggles for many Americans, especially people on the margins.

Most Americans are “not taking any solace from the fact that AI stocks are going stratospheric; they’re focused on having to make their credit card payment or the student loan monthly payment,” Zandi said. “The economy is fragile and, therefore, something like a government shutdown could become a bigger problem a lot faster than people might think so.”

A lack of funding for safety net programs, particularly the Supplemental Nutrition Assistance Program, could not only exacerbate hunger and hardship for tens of millions of Americans, but also threatens to destabilize local economies, especially in rural areas.

“It just adds insult to injury on an economy that was already showing some cracks,” KPMG economist Swonk said. “Low- and middle-income households are really struggling, and inequality tends to stoke political divisions as well as political backlash. So, this is just feeding in to already a not very comfortable situation that we are in.”

“It’s hard when you see the struggles we’re already facing, but this is a man-made problem,” she added.

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CNN’s Tami Luhby contributed to this report.