Government Shutdown Triggers Snowball Effect, Further Straining U.S. Economy

Multiple international outlets report that on November 4 local time the U.S. federal government shutdown reached its 35th day, equaling the longest shutdown on record. Mark Zandi, Chief Economist at Moody’s Analytics, warned that an economy already showing fragility could see a shutdown escalate into a broader crisis more rapidly than anticipated.

The Congressional Budget Office has estimated that the shutdown’s duration will materially affect fourth-quarter real GDP growth; depending on how long it continues, annualized growth could be reduced by one to two percentage points. Under that projection, a four‑week shutdown would cost the U.S. economy $7 billion, a six‑week shutdown would raise losses to $11 billion, and an eight‑week shutdown would reach $14 billion.

Diane Swonk, Chief Economist at KPMG, described the shutdown’s cascading impact as analogous to a snowball gaining momentum: the force and scope of the effect increase as it progresses. Observers note that financial and policy uncertainty has led many employers to postpone investment decisions and hiring plans, while some firms are accelerating tests of artificial intelligence and automation—developments that have coincided with significant layoffs.

Zandi observed that meaningful job creation has been lacking, and in a weakened labor market, workers in recently created roles may still face unemployment. If government support mechanisms weaken, federal employees experience delayed pay, and household consumption falls, businesses may resort to layoffs or face closure.

On November 1, 2025, over 65,000 children and their families across 41 states and Puerto Rico confronted the risk of losing access to the Head Start program. The temporary suspension of Head Start would increase financial pressure on low‑income households and interrupt childcare services, a disruption likely to depress labor force participation—especially among women.

Economists caution that postponed or canceled expenditures, hiring, travel, and holiday shopping may not fully return. Joe Brusuelas, Chief Economist at RSM, emphasized that the effect is not merely a timing shift for economic activity but can represent permanent loss for some sectors. Zandi added that once market confidence erodes, the economy approaches a critical tipping point: consumer, business, and investor confidence all decline, prompting stock market volatility and potential downward trends. He warned that a shutdown extending beyond Thanksgiving would make a rapid economic recovery unlikely.

Millions of Americans who depend on federal assistance programs, including the Supplemental Nutrition Assistance Program, face increasing uncertainty. For households already strained by inflation, any delay in government aid could exacerbate financial hardship. Zandi noted that most people are not reassured by rising valuations in AI‑related stocks; they are primarily concerned with meeting obligations such as credit card bills and student loan payments.

Swonk stated that the shutdown compounds existing vulnerabilities in the U.S. economy. She pointed out that middle‑ and lower‑income families are acutely affected and that widening inequality can deepen political divisions and provoke backlash, thereby worsening an already fragile situation. She concluded that, given the array of preexisting challenges, a government shutdown represents an avoidable, self‑inflicted burden on the economy.