Would a limited government shutdown affect the economy? Specialists share their insights

Senate Races Against Time to Prevent Partial Government Shutdown

With only hours remaining before the midnight deadline, the federal government was on the verge of a partial shutdown as Senate leaders worked to finalize a funding agreement.

This looming shutdown comes at a time when the U.S. economy is grappling with persistent inflation and slow job growth, creating a challenging environment for policymakers.

Experts told ABC News that, should a partial shutdown occur, the immediate economic fallout would likely be limited. The primary impact would be felt by federal employees placed on furlough, who would temporarily lose their income, leading to a short-term dip in consumer spending. However, most of this lost spending is expected to rebound once backpay is issued and spent.

Nevertheless, analysts cautioned that the overall economic consequences would depend on how long the shutdown lasts. If the stalemate extends beyond a few days into weeks or months, the negative effects could intensify. Disruptions to government services could also affect the public, including those relying on tax assistance or air travel safety.

“A partial government shutdown offers no benefit to the economy, but any negative effects would be relatively minor,” said Mark Zandi, chief economist at Moody’s Analytics.

Zandi added, “It’s expected to be a partial and brief shutdown. However, if it continues for several weeks, it could cause more significant economic harm.”

Senate and White House Reach Tentative Agreement

On Thursday, Senate Democrats announced they had reached a deal with the White House to separate funding for the Department of Homeland Security (DHS) from a broader package covering five other agencies.

Despite this progress, as of Friday afternoon, the Senate still faced hurdles to finalizing the agreement, and the outcome of a House vote remained uncertain.

Which Agencies Would Be Impacted?

According to Rachel Snyderman, economic policy director at the Bipartisan Policy Center, a partial shutdown would affect agencies such as DHS, the Department of Health and Human Services, the Department of Labor, the State Department, and the Department of Transportation.

Many other departments, including Agriculture, Justice, and Veterans Affairs, would continue operating. Programs like the Supplemental Nutrition Assistance Program (SNAP) and Social Security would also remain unaffected.

Snyderman noted that the agencies at risk of closure account for about 75% of Congress’s annual discretionary spending, not including mandatory programs like Social Security and Medicare.

Consequences for Federal Workers and Local Economies

If the shutdown proceeds, affected federal employees will miss their first paycheck on February 13, Snyderman said. This loss of income is the main threat to the broader economy, as reduced spending by these workers could slow business activity, especially in regions with many federal employees.

“Some local businesses depend on daily commuters and contractors coming to work,” Snyderman explained.

She emphasized that the economic toll will be “directly determined by how long the shutdown lasts.”

Historical Context and Economic Impact

Historically, government shutdowns are often resolved quickly. Since 1977, there have been 20 instances where the government missed a funding deadline, with shutdowns lasting an average of eight days, according to a September memo from the Bank of America Institute.

The most prolonged shutdown in U.S. history occurred last fall, lasting 43 days and resulting in economic losses equal to 0.8% of inflation-adjusted GDP, as reported by accounting firm EY.

For perspective, the U.S. economy grew at an average annualized rate of 1.6% in the first half of 2025, meaning the shutdown erased about half of that six-month growth. Most of these losses were eventually recovered, analysts said.

Stock Market Reaction

Despite concerns, the stock market has remained resilient during recent shutdowns. The S&P 500 rose during each of the last five shutdowns, including a 2.4% gain during the 2025 closure.

“The key lesson from the 2025 shutdown is that while U.S. stocks did increase in value, they lagged behind other global markets,” said Dominic Pappalardo, chief multi-asset strategist at Morningstar Wealth.

“It wasn’t a crisis that triggered a market sell-off, but U.S. equities did underperform compared to international peers,” he added.

Potential Disruptions to Daily Life

Analysts believe the upcoming partial shutdown is unlikely to match the economic damage seen last fall, as more government functions are expected to remain open and lawmakers seem more motivated to reach a compromise.

However, interruptions to government services could still affect daily routines, particularly financial activities like tax filing. The IRS has just started accepting tax returns for the new season, but the extent of any disruption for taxpayers remains uncertain.

“It’s difficult to predict how tax season will unfold under these circumstances,” Snyderman said.

Rahmat Gul/AP - PHOTO: People are seen on the Washington Mall, with the Capitol in the background, Jan. 30, 2026.