The Federal Government Shutdown Effects on Economy
Submitted by
Ramona Rhodes

Prepared for
Dr. Sina
Finance 5000
Summer 2014
Webster University

July 12, 2014

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ABSTRACT This paper will discuss the effects the federal government shutdown had on the civil service household, thus the economy. Although some statistics will show it as a small percentage of the total employment, it was enough to halt paychecks, goods, services and programs. That is enough to have government workers curtail their spending and perhaps alter it, because of the perception of what the government shutdown will do even in the future. The perception spills over into the private sector and starts to affect the economy as a whole. Thus, the GDP will be examined in this paper. The federal government shutdown will be examined from the broad impact to the personal impact, which all of it affects the financial market.

The federal government shutdown October 1, 2013 and it lasted through October 17, 2013. Primarily, this happened because of more political reasons than anything else. There was a standoff in congress between the Republican and the Democratic Party. Actually, the federal government shutdown does not directly affect the stock market or bonds. However, it does have an impact. The shutdown was considered a gap in funding by the government. This gap impacted the economy in a big way. Just the thought of a federal government shutdown sent panic to the whole economy. People started reacting, without the realization that it was not going to be as critical for each household as they thought. Mainly the federal government workers were affected. Pointedly, their paycheck was affected. Immediately, their security was threatened, which lead to the psychological effect. Those were just a few things, however it lead to more things the longer the shutdown lasted. To understand the whole spectrum one must know how many government homes were affected. It was estimated that approximately 850,000 federal government workers were furloughed and the Department of Defense (DOD) recalled about 400,000 workers back. The total amount of employment is 144,000,000, which makes the government workers approximately .5% of the total employment. (Labonte, 2013) This does not include any private firms with federal government contracts that had to lay off or furlough their workers. The statistics was stagnant enough to impact the economy in so many ways. Just to name a few things that was affected were Government loans to small businesses, homeowners and private sector lending to individuals because they could not access government income and Social Security Number verification services. There were also government programs such as patients in clinical trials, IRS department and agencies from the Food and Drug Administration to the Environmental Protection Agency. Those are vital organizations that will heavily affect the financial market. The financial market had a negative impact because the confidence level declined because of the shut down and debt limit impasse. Truly one can see how financial uncertainty due to the shutdown puts a damper on the economic growth. Which in turn affects the Gross Domestic Product (GDP). According to Moody’s approximately one-fifth of total federal spending was affected by the shutdown. (Labonte, 2013) Although there was a slight decrease in the GDP for that quarter, it picked up and leveled off in the next quarter. Just like the stock market was a little slow that week, but by the next week its’ operation was back to normal. This shutdown lasted approximately two and half weeks so the