By Natalie Hayes Schmook, MBA, CFP, CVA, Hayes Wealth Advisors
Greeting from Belize! My family was on fall break from school and my husband had us get to the airport extra early in case TSA was slow from the shut down. But why do these shutdowns happen, and what are the economic implications?
Shut downs have the potential to happen every September 30th, when the government’s fiscal year ends and the budget for the new fiscal year has to be approved by congress and then the president. There have been 10 shut downs since 1976, with the longest one being in Trump’s first presidential cycle in 2018 of 35 days.
Shut downs impact federal employees the most, with all non-essential service being closed until a budget is agreed upon. Most notably national parks, museums and monuments closed, which would not be fun for us if we had elected to vacation in the U.S. somewhere like Washington, D.C.
Federal research activities are also halted, including at the National Institutes of Health (NIH) and Centers for Disease Control and Prevention (CDC), something that affects many folks in my city of Atlanta. Less stress are some visa and passport processing delays and delays in processing applications for some benefits, such as Social Security cards.
Even in other areas of the government you may want to check on friends who are employed there. Right now, an estimated 750,000 federal workers have been furloughed. I didn’t realize this, but “excepted” or “essential” personnel, such as law enforcement, military service members, and air traffic controllers, are required to continue working without pay. The good news is that federal workers are guaranteed back up pay once the shut down ends.
What are takeaways for the average person who this likely doesn’t impact?
- This is a really great example of why an emergency fund is SO important. For a dual income household (and I mean income from two sources, not one business), you should have 3-6 months of living expenses on hand and for single income household that amount increases to 6-12 months of living expenses (so basic expenses, not travel, clothes, etc.).
- I’m always reminding clients the government ≠ the stock market and this week is certainly an indication of that. The S&P 500 pulled back a little on Monday but rallied through the rest of the week ending roughly 0.7% above the prior week. That could change if congress’ disagreement continue but consider this week a good reminder that developing an investment strategy with a risk profile you’re comfortable with and sticking it out is the most prudent strategy for investors.
- On a lighter note, if you have a break starting the beginning of October each year like my family does, make sure you plan around possible government shutdowns and get to the airport earlier than normal. Also, don’t cut it close on passport renewal this time of year! Last, have a back-up plan during hurricane season if you plan to go somewhere tropical, but that’s last year’s story…
HOW A SHUTDOWN HAPPENS
Under the U.S. Constitution, Congress holds the “power of the purse” and is responsible for passing 12 annual appropriations bills to fund the government.
- Fiscal year deadline: The federal fiscal year ends on September 30.
- Failure to pass appropriations: If Congress does not pass and the president does not sign the appropriations bills by the deadline, a funding gap occurs.
- No continuing resolution (CR): Lawmakers can temporarily avert a shutdown by passing a “continuing resolution” that extends funding at current levels. A shutdown happens if no CR is passed.
- Agencies cease operations: Under the Antideficiency Act, federal agencies must stop all non-essential functions and cannot spend money without congressional authorization.
IMPACT ON FEDERAL EMPLOYEES
- Furloughs: Many federal employees are placed on temporary, unpaid leave. Since the ongoing October 2025 shutdown, an estimated 750,000 federal workers have been furloughed.
- Working without pay: “Excepted” or “essential” personnel, such as law enforcement, military service members, and air traffic controllers, are required to continue working without pay.
- Retroactive pay: Though federal employees are guaranteed back pay after the shutdown ends, contractors are not.
- Economic hardship: The lack of a paycheck can cause severe financial strain, leading many to seek out loans, use food banks, or rely on friends and family.
IMPACT ON GOVERNMENT SERVICES
- Public services suspended: Non-essential services are disrupted, including:
- National parks, museums and monuments closed.
- Federal research activities halted, including at the National Institutes of Health (NIH) and Centers for Disease Control and Prevention (CDC).
- Some visa and passport processing delays.
- Delays in processing applications for some benefits, such as Social Security cards.
- Reduced safety inspections: The Food and Drug Administration (FDA) may suspend routine food inspections, increasing public health risks.
- Limited essential services: While many vital services continue, they often operate with limited staffing and resources.
- Transportation: Air travel can experience delays and longer lines due to overworked, unpaid air traffic controllers and TSA agents.
- Disaster relief: FEMA can continue responding to emergencies, but long-term recovery projects may be delayed due to reduced funding.
- Benefits continue with delays: Social Security, Medicare, Medicaid, and military retirement payments continue, though some services and processing may be delayed.
ECONOMIC IMPACTS
- Decreased economic output: Government shutdowns can reduce Gross Domestic Product (GDP).
- Reduced consumer spending: Furloughed federal workers reduce their spending due to lost paychecks, negatively affecting private sector businesses.
- Small business delays: Federal loans and loan guarantees for small businesses are often halted, delaying new projects.
- Reduced public confidence: Shutdowns signal a breakdown in the political process, eroding public trust in the government’s ability to function effectively.
Featured photo credit: iStock/Getty Images
