The federal government is facing a possible shutdown on September 30, unless Congress can agree on a spending bill to keep it running. This would have a negative impact on the economy and especially on small businesses, who are already struggling to recover from the pandemic.
Shutdown would disrupt federal services and contracts
A government shutdown would mean that many federal agencies and programs would stop operating or reduce their services. This would affect millions of Americans who rely on them for various needs, such as health care, education, social security, and more.
For small businesses, a shutdown would also disrupt their access to federal contracts, loans, grants, and other assistance. According to the Small Business Administration (SBA), small businesses received $145.7 billion in federal contracts in fiscal year 2020, accounting for 26.01% of the total contract spending. A shutdown would delay or cancel these contracts, causing revenue losses and cash flow problems for small businesses.
Additionally, a shutdown would prevent small businesses from applying for or receiving SBA-backed loans, which are a vital source of financing for many entrepreneurs. The SBA approved over 42,000 loans worth $22.55 billion in fiscal year 2020. A shutdown would halt this process and leave many small businesses without the funds they need to start, grow, or survive.
Shutdown would hurt consumer confidence and spending
A government shutdown would also have a psychological effect on the economy, as it would signal a lack of leadership and cooperation among lawmakers. This would erode consumer confidence and spending, which are key drivers of economic growth.
According to a survey by Goldman Sachs shared with Axios, 70% of small business owners said their business would be negatively impacted by a shutdown, and of those, 93% said their revenue would take a hit. The survey also found that 91% of small business owners said it is important for the federal government to avert a shutdown.
Consumer confidence is already at a low level due to the ongoing effects of the pandemic, such as rising inflation, supply chain disruptions, labor shortages, and health risks. A government shutdown would add more uncertainty and anxiety to the situation, and discourage consumers from spending their disposable income. This would hurt small businesses that depend on consumer demand for their products and services.
Shutdown would risk economic recovery and growth
A government shutdown would not only harm the current state of the economy, but also jeopardize its future prospects. A prolonged stalemate would slow down the recovery from the pandemic-induced recession and hinder the growth potential of the economy.
According to the Congressional Budget Office (CBO), the U.S. economy is expected to grow by 7.4% in 2021 and 3.1% in 2022. However, these projections assume that the federal government will continue to provide fiscal support and avoid disruptions to its operations. A government shutdown would undermine these assumptions and lower the economic outlook.
Moreover, a government shutdown would hamper the efforts of the federal government to address the long-term challenges facing the economy, such as infrastructure, climate change, innovation, and competitiveness. These issues require bipartisan cooperation and investment to ensure the sustainability and prosperity of the economy. A government shutdown would show that lawmakers are unable to work together and prioritize the common good over partisan politics.
