Federal employees barely back to work following the longest government shutdown in United States history are already bracing themselves for another potential payless stint. President Trump has raised the specter of another government closure if Congress doesn’t come up with a proposal that includes the $5.7 billion he has demanded to build a southern border wall. Plan B is to declare a national emergency, drawing from the Department of Defense’s coffers and personnel to do the job.
What were the primary effects of the last shutdown, and how might our economy be impacted if either of Trump’s threats are acted upon?
“Economically, this shutdown's impact was concentrated in certain cities that have a large number of federal workers and businesses that rely on the federal workers,” says Villanova School of Business Economist David Fiorenza.
Aside from the direct effect it has on federal employees, “Federal shutdowns primarily affect those who rely on federal services or who are visiting federal sites,” he added.
Ironically, perhaps, the largest negative impact from the last shutdown hit Washington, D.C. the hardest, according to Fiorenza. “Not only did government workers not receive pay, even though it is deferred, but spending in the area came to a halt. Business saw a large drop off in their sales. Also, the city and utility companies did not see their payments made to them on time due to federal buildings not being open.”
Gross Domestic Product (GDP) will not be impacted from the last shutdown nor will it be if another one develops after February 15, Fiorenza notes. “The impact would be larger in summer months during the busiest tourism travel season. I do not see another shutdown having a major impact in mid-February.”
As to the declaration of a National Emergency that would directly affect the Department of Defense, Fiorenza says that’s a non-starter.
“Funds would be diverted from other parts of the world in national defense and efforts put towards the border. I do not see a large increase in spending as the draw down of expenses in the Middle East will be diverted to the Mexico-U.S. border. Military funding cannot be used for construction costs of a border” he concluded.
To speak with Fiorenza, email firstname.lastname@example.org or call 610-519-5152.
David Fiorenza Economics Instructor | Villanova School of Business
David Fiorenza is an expert in local economic impact, the economics of the hospitality industry and state budgetary negotiations