Here’s how much the shutdown could cost Greater Washington’s economy

From The Washington Business Journal:

Greater Washington benefits from about $2.5 billion each week in federal spending on wages, contracts and grants — and stands to lose hundreds of millions a week under a prolonged government shutdown.

About $899 million a week comes in the form of direct payroll for civilian and military employees, according to a fresh analysis from the Stephen S. Fuller Institute at George Mason University set to be published Monday. Another $1.3 billion comes from federal contract spending and another $286 million comes from grants.

A three-week shutdown without retroactive pay (and about 10 percent losses of contract spending not made up later) could result in about $1.3 billion in losses, or about 0.26 percent of the gross regional product for the year, according to an analysis by the Institute. That scenario would be what the Institute considers to be “worst case” and unlikely to occur. The Institute had previously projected gross regional product (GRP) growth of about 2.3 percent for 2018.

About 31 percent of federal workers nationwide were furloughed during the previous shutdown, and if the region mirrored the national average, that means 114,000 federal workers in Greater Washington would be out of work until the shutdown is resolved.

Calculating the costs of a shutdown can be difficult, and relies on a number of factors that could exacerbate the potential economic damage, including:

  • Back pay. If Congress provides retroactive pay to workers furloughed during the shutdown, it will minimize the impact. No back pay will make it worse as households lose out on that income entirely. Meanwhile those who kept working during the shutdown will be paid later, stressing households living paycheck to paycheck.
  • Loss of confidence. Even those unaffected by the shutdown could curtail their spending or avoid big purchases. For example, the November following the shutdown in October of 2013 saw an unexpected drop in housing sales. That loss of confidence could easily happen again, according to the analysis.
  • Financial disruption. Missed paychecks and delayed spending can cause problems down the road, as families struggle to make loan payments or deal with the sudden loss of an income stream. Businesses heavily reliant on the foot traffic from federal workers could end up struggling as well.

A shorter shutdown, even a few days, may leave a psychological mark but won’t have much of a financial impact.

“It’s going to be smaller than most people might think at first glance,” Chapman said, adding there will be a cost no matter how short it is. “It’s not that the economic cost is going to be zero. It’s that we are not losing the full $2 billion that is usually cited.”

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Copyright Washington Business Journal, reprinted with permission