How Much Did The Government Shutdown Impact The Weak Fourth-Quarter GDP?

I do a calculation factoring in all of the deferred layoffs effective October 1.

Percentage Point Contributions to Fourth-Quarter GDP.

The BEA’s GDP Report for 2025 Q4 dramatically missed estimates of 3.0 percent by GDPNow and 2.8 percent by Bloomberg Econoday.

Percentage Point Contributions to GDP Detail

PCE Services: 1.59 PP
PCE Goods: -0.01 PP
Government: -0.90 PP
Residential Investment: -0.06 PP
Nonresidential Investment: 0.51 PP
CIPI: 0.21 PP
Exports: -0.01 PP
Imports 0.18 PP

PCE stands for Personal Consumption Expenditures.

CIPI stands for Change in Private Inventory.

Imports neither add nor subtract from GDP by definition (D meaning domestic). However, the BEA assumes all sales are domestic so it adjusts by the dollar amount of imports.

I wish the BEA would point this out, but Imports do not subtract from GDP. They have no impact at all.

Government Contribution in Percentage Points

Total: -0.90
Federal Total: -1.15
National Defense: -0.42
Federal Non-Defense: -0.72
State and Local: 0.25

The government contribution to fourth-quarter GDP was -0.90 percentage points.

Government Contribution in Dollars

Total: -52.4
Federal Total: -67.6
National Defense: -25.0
Federal Non-Defense: -42.6
State and Local Consumption: 14.6

Trump Statement

Truth Social Link: The Democrat Shutdown cost the U.S.A. at least two points in GDP. That’s why they are doing it, in mini form, again. No Shutdowns! Also, LOWER INTEREST RATES. “Two Late” Powell is the WORST!!! President DJT

BEA Statement

Due to a lapse in appropriations, some federal government agencies were closed, and some employees were furloughed from October 1 through November 12. The full effects of the partial federal government shutdown on the fourth-quarter estimates cannot be quantified because they are embedded in the regular source data that underlie the estimates and cannot be separately identified. However, BEA did estimate the effects of a reduction in the labor services supplied by federal employees. BEA estimates that this reduction in services provided by the federal government subtracted about 1.0 percentage point from real GDP growth in the fourth quarter. Because furloughed federal employees received back pay, the shutdown had no impact on current-dollar federal compensation and was reflected as a temporary increase in the prices paid for federal employee compensation. For more information, an FAQ is available on BEA’s website.

Key Monthly Employment Levels (Thousands, Seasonally Adjusted)

September 2025: 2,914
October 2025: 2,748
November 2025: 2,733
December 2025: 2,720
Cumulative Q4 (Sep to Dec): 194,000 net drop.
January 2026: 2,686 (for context, continued decline)

September-to-October drop: 2,914 – 2,748 = 166,000 fewer federal employees on payroll. This is massive—about a 5.7% single-month plunge, the largest monthly decline in the series’ history (dating back to 1939).

Estimating the Paycheck Decline (Government-Wide)

With benefits, assuming an annual cost $160,000 (per Peter G. Peterson Foundation) is ~$2.59 billion/month or ~7.8 billion for the quarter.

That 7.8 billion is a permanent loss, which some would consider a good thing.

Without that employment loss, the Government GDP contribution would have been ~7.8 billion higher, -44.6.

We can now do a calculation factoring out the drop in employment.

-1.15 / -52.4 = X / -44.6

X = -0.98 confirming the BEA math.

BEA Layoff FAQ

When there is a lapse in appropriations, some federal government agencies are closed and some employees are furloughed. For the most part, the effects of a federal government shutdown on components of GDP and the national income and product accounts (NIPAs), such as personal consumption expenditures or private wages and salaries, cannot be quantified because they are embedded in the regular source data that underlie the estimates and cannot be separately identified.
However, one component of GDP for which the effects can be estimated is real federal government consumption expenditures, specifically, real federal government compensation. Conceptually, real compensation measures labor input, such as hours worked by federal employees. The estimate of real compensation is based primarily on employment data from the Bureau of Labor Statistics (BLS). During a government shutdown, federal workers are counted as “employed” in the BLS data if they eventually receive backpay, so these data would not reflect the reduction in services provided by the federal workforce. To account for the reduction in services, BEA adjusts real compensation based on an estimate of the reduction in hours worked, reflecting the number of employees furloughed and the number of furlough days.
After shutdowns, furloughed workers receive back pay. As a result, shutdowns have no impact on current-dollar federal compensation. In the NIPAs, compensation of government employees is measured on an accrual basis (when the compensation is earned); therefore, the timing of when the back pay was actually paid out does not affect the estimates.
Because there is a decrease in real federal government compensation without a corresponding decrease in current-dollar compensation, there is a temporary increase in the implied prices paid for federal government compensation, which BEA measures as the ratio between current-dollar compensation and real compensation. This is to say, the effect of a furlough on BEA’s estimates is to reduce the level of government services provided while maintaining the same cost of those services.

People were paid for work they did not perform.Think of all the reports out on hold and surveys not taken. It’s not like that work will ever be performed.

This is very much unlike a hurricane that disrupts spending then there is a boom of restoration.

If there were government contracts that were postponed until 2026, then that will turn up in the first quarter of 2026. If no contracts were delayed until 2026, I don’t believe there will be a 2026 influence from the shutdown.

My expectation, admittedly without understanding potential BEA nuances, is the -0.90 fourth-quarter result is one time, with little or no influence in 2026.

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