Office of Management and Budget and Council of Economic Advisors Quantify Costs of the October Federal Government Shutdown

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Wednesday, November 20, 2013
The shutdown and last minute debt limit deal caused a reduction of 120,000 private-sector jobs, according to a new report

A new report out from the Office of Management and Budget (OMB) describes that the October 1-16 federal government shutdown shaved 0.2 to 0.6 percentage points off of the growth of economic output in the fourth quarter of 2013 and cost the federal government $2 billion in wages to furloughed employees. Another paper from the Council of Economic Advisors (CEA) reports that the combination of the shutdown and the last minute debt limit deal reduced private-sector jobs by 120,000.

The OMB report cites estimates from several important forecasters of economic activity – including Standard and Poor’s, Macroeconomic Advisors, Goldman Sachs, and Mark Zandi of Moody’s – whose estimates of the impact of the shutdown range from 0.2 to 0.6 percentage points of gross domestic product growth and approximately $2 to $6 billion in lower output in the fourth quarter of 2013. OMB cautions that the real costs may be higher—the estimates do not capture how the shutdown harmed consumer and business confidence and how individuals and businesses were affected by delayed permitting, licensing, and lending by the federal government.

OMB also estimates that a combined 6.6 million work days were paid to employees who did not work during the 16-day shutdown. The cost of those paid but un-worked days was $2 billion in wages and approximately another $0.5 billion in the value of non-cash benefits.

The CEA report combines a number of economic indicators to estimate that the shutdown and last minute debt limit deal caused a reduction of about 120,000 private-sector jobs in the first few weeks of October. Their estimate only measures through October 12, so any impacts past that date—which almost certainly exist—are not measured.

The exact figures released by OMB and CEA should be interpreted with caution—exactly what economic activity was slowed or lost because of the shutdown and debt limit deal is difficult to estimate. However, it is clear that the federal shutdown definitely had negative and tangible economic consequences.