LegiStorm

Summary:

The federal government experienced a funding gap beginning on October 1, 2013, which ended when the Continuing Appropriations Act, 2014 (P.L. 113-46) was signed into law on October 17, 2013. This funding gap resulted in a "government shutdown" and the furlough of federal employees who were not excepted. The Continuing Appropriations Act, 2014 also temporarily suspended the statutory debt limit through February 7, 2014. This report discusses the effects of the FY2014 government shutdown on the economy. The government shutdown had both direct and indirect effects on economic growth. It directly reduced gross domestic product (GDP) because government spending is a component of GDP. The Bureau of Economic Analysis estimates that real GDP growth was reduced by 0.3 percentage points because of the reduction in hours worked by federal employees; it has not estimated the overall effects of the shutdown. Overall, federal spending fell by 6.6% in the fourth quarter, but this is comparable to the rate in previous quarters. Assuming the funding levels enacted on October 17, 2013 were the same as the funding levels that would have been enacted on September 30, 2013 had a shutdown not occurred, some spending would have been delayed, but not permanently reduced. For example, furloughed federal employees were paid in full, but late. Since the shutdown occurred at the beginning of the quarter, much of the delayed spending may have occurred before the quarter is over. An example of a potential indirect effect is a reduction in private consumption or business investment because of a decline in consumer confidence, which surveys reported in October. GDP growth rose to 3.8% in the fourth quarter of 2013, so it does not appear that the indirect effects were significant. Some of the indirect effects may be attributable to the debt limit impasse, however, which occurred at the same time as the shutdown. The Administration reported that federal worker furloughs over the course of the shutdown were equivalent to 6.6 million work days, peaking at 850,000 workers furloughed at the beginning of the shutdown. The number of private employees laid off or furloughed as a result of the shutdown is unknown. Initial unemployment claims surged during the shutdown. For technical reasons, the shutdown had no effect on the more frequently cited job growth figure, but the Bureau of Labor Statistics reported that 440,000 federal workers were unemployed on temporary layoff or not at work for "other" reasons in October 2013 (compared to 15,000 in October 2012). A review of third-party estimates of the effects of the shutdown on the economy finds a predicted reduction in GDP growth of at least 0.1 percentage points for each week of the shutdown, with a cumulative effect of up to 0.6 percentage points in the fourth quarter of 2013. Most of the estimates are predictions by professional forecasters, many of which were made before the shutdown had ended. These estimates are subject to error and uncertainty. Overall, most forecasters predicted that the effects of the shutdown on the economy would be small relative to the overall economy because it ended after 2½ weeks, it only affected a subset of federal spending, and it generally delayed rather than eliminated federal spending. The economic effects of the shutdown were unevenly distributed across regions, industries, or individuals, however. Where detail was provided, most forecasters did not factor in any multiplier or indirect effects of the shutdown. In that sense, the estimates reviewed can be thought of as a lower bound on the overall effects on economic activity. The Congressional Research Service does not plan to provide an independent estimate of the economic impact of the shutdown. This report does not provide background on or explanation of recent or historical shutdowns or funding gaps. For information about government shutdowns, see CRS Report R43250, CRS Resources on the FY2014 Funding Gap, Shutdown, and Status of Appropriations, by Justin Murray and CRS Report RL34680, Shutdown of the Federal Government: Causes, Processes, and Effects, coordinated by Clinton T. Brass.