How Much Does the Government Shutdown Cost?

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While the U.S. government shutdown may merely be an afterthought or an inconvenience for some people, it's costing the economy and taxpayers plenty.

So how much does the government shutdown cost?

The daily tab for the government shutdown is a whopping $160 million.

The shutdown cost some $1.6 billion in lost output from the $15.7 trillion U.S. economy in its first week alone, according to global market research firm IHS Inc.

Bloomberg reported that two days into Week 2, the government shutdown cost equaled $2 billion in economic damages - the same amount that heavy rains, flash flooding, and mudslides in 17 Colorado counties cost the state last month.

How the Government Shutdown Costs Add Up

  • Government agencies have ether curtailed work or shuttered most operations. The result is that the Environmental Protection Agency, the National Transportation Agency, the Equal Employment Commission, and the Consumer Safety Commission cannot access or collect millions of dollars' worth of fines.
  • The Internal Revenue Service has suspended all audits. Additionally, it is not processing any tax refunds during the shutdown. That leaves individuals who were counting on refund checks to spend or invest out of luck.
  • Some borrowers are finding it more difficult to close on their mortgages. Some lenders are having trouble verifying applicants' income tax returns and Social Security data due to government agency closures.
  • The Federal Housing Administration (FHA) has slowed the agency's processing of loans for some low-to-moderate income borrowers, and first-time home buyers, as a result of furloughs. Roughly 15% of new loans for home purchases are insured by the FHA.
  • The Department of Housing and Urban Development (HUD) is not able to provide additional payments to the nation's 3,300 public housing authorities. HUD also awards myriad grants to a number of groups and organization for a variety of purposes.
  • All 59 U.S. national parks are closed. Also shut are heavily visited sites including the National Zoo, the Smithsonian, Independence Hall in Philadelphia, and Alcatraz in San Francisco. That means all are not collecting admission fees.

And, there are costs that are much harder to measure, like opportunity costs. These costs include passing up the best choice when making a business, investment, or personal decision because the best choice is simply not available. In this case, it's because the government shutdown has taken away the best choice.

And the effects will continue...

In an Oct. 1 survey of 925 members, the National Association of Government Contractors found that 29% of respondents said they plan to postpone hiring because of the impasse, and 58% said the deadlock will negatively affect their businesses.

Goldman Sachs Group Inc. (NYSE: GS) estimates the shutdown will shave 0.5% off fourth-quarter gross domestic product (GDP), bringing Q4 GDP down to 2%. However, that's contingent on a swift resolution. Government spending makes up roughly one-fifth of GDP, so a prolonged shutdown will be more painful to the overall U.S. economy.

Now with the debt ceiling looming, and the government shutdown showing no signs of ending, investors need to be prepared - here's what to do.

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