MW The government shutdown is reaching a tipping point that could send the economy into a downward spiral

By Greg Robb

Federal workers missing paychecks, risks to SNAP benefits and companies waiting on permits are creating dangerous economic conditions as the second-longest shutdown in history drags on

The economic impact of the government shutdown has been relatively muted so far, but with the stalemate now entering its fourth week - and threatening to be the longest ever - economists are growing increasingly worried that the consequences could become more severe. There is talk about a possible big break or crack in conditions that could damage the economy.

When the shutdown began on Oct.1, economists were relatively unconcerned about the economic impact. Based on prior experience, they estimated that the shutdown would subtract about 0.1%-0.2 percentage points from annualized GDP growth in the October-December quarter for each week it lasts. But all their initial estimates always mentioned that risks to the economy would grow as the shutdown continued.

"There are also knock-on effects on government contractors, other private businesses and consumers that are tougher to anticipate but grow more disruptive to the economy with each passing week," explained the economic team at Oxford Economics.

The shutdown, now in its 22nd day, is the second-longest on record. If this shutdown lasts past Nov. 4, it will be the longest on record.

This shutdown is also more worrisome than previous stalemates because it's a complete government shutdown. In past shutdowns, many federal agencies were funded and continued to operate, meaning only a part of the government was closed.

Talk of more lasting damage to the economy is picking up.

"If we go beyond the middle of November and the shutdown collides with the holidays ... then I think we start to get concerned about more lasting damage," said Nancy Van Houten, lead economist at Oxford Economics.

Evidence of these disruptions is accumulating daily. Some states have warned their lower-income residents that they are at risk of not receiving Supplemental Nutrition Assistance Program (SNAP) benefits due to the shutdown. The program, known to many as food stamps, serves 42 million Americans at a time when grocery prices are already high.

Federal workers won't receive a paycheck for the pay period ending this week. And the "boring" part of government - from licenses and permits to contracts - has stopped, putting companies in limbo.

What worries economists is that all these disruptions, while painful for the individuals involved but relatively small for the national economy, could cause a tipping point, where consumers and businesses pull back, sending the economy into a downward spiral.

In general, what economists are worried about is that the shutdown could spark a loss of confidence as "more cuts in consumer spending, lead to more layoffs, thus leading to less spending," said Van Houten.

The economy is already in a risky situation, with a "wobbly" labor market and lower-income households feeling pressure on their spending, she said.

In August 2011, when Republicans and Democrats were locked in a stalemate over raising the debt ceiling, consumer confidence plunged and consumers pulled back spending.

While warning that there is a risk of a fall in confidence, economists acknowledged they don't have answers the public might want.

"We're going into territory we really don't know that much about," said Jonathan Millar, senior U.S. economist at Barclays. He said the dearth of government data has created conditions like "the dark side of the moon."

By their very nature, severe drops in consumer confidence are hard to forecast.

Michael Gapen, chief U.S. economist at Morgan Stanley, said he will be more worried about the economy if the shutdown drags on through mid-November.

Consumers and retailers are starting the holiday season earlier and earlier, which means even a shutdown that ends well before Christmas could have economic implications, said Mark Zdinak, director of the U.S. economic team at S&P Global.

Millar is currently forecasting GDP growth at a 1% annual rate in the October-December quarter. If the stoppage lasts well into November, there could be a flat or negative GDP print, he said.

Gapen said he is worried that the longer the shutdown lasts, the more the risk that it could combine with something else, such as trade tensions with China, to cause consumers and businesses to delay spending.

Fear from furloughed workers about whether they'll receive back pay or be fired could spread to the private sector, the economist said.

More than 4,100 layoff notices went out earlier this month, but a federal judge last week granted a temporary restraining order blocking such job cuts.

President Donald Trump and other officials have floated the idea that agencies might not provide back pay to some employees.

Brian Bethune, an economist at Boston College, said the shutdown was draining the flow of liquidity in the economy.

"As the spending stream starts to diminish, you could have more rocks exposed, and the more likely you'll get episodic bankruptcies," Bethune said.

That may prompt the Federal Reserve to end its program to shrink its balance sheet, which takes liquidity out of markets. And if there is no resolution, this could lead the central bank to engineer a larger interest rate cut in December, he said.

-Greg Robb

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October 22, 2025 11:48 ET (15:48 GMT)

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