As federal shutdown lengthens, economists say pain will mount on Long Island

WASHINGTON — The damage the U.S. government shutdown will inflict on Long Island’s $260 billion yearly economy will only increase as it drags on, Island economists and business leaders say.

As the shutdown reaches 15 days on Wednesday, some Long Islanders and other New Yorkers already face mounting economic uncertainty, with no sign of a resolution in this Washington-made crisis.

They are left wondering what’s next, and what it will mean for them?

"It is where no one wants to be, and the longer it takes to be resolved, the more apparent its impact on Long Island will become," said Kyle Strober, executive director of the Association for a Better Long Island, an economic development advocacy organization.

The reality is if the government closure is prolonged, the damage could be unprecedented, as some segments of the U.S. economy are already in distress. Nonetheless, in recent days there’s been talk the shutdown could go into November.

"We’re barreling toward one of the longest shutdowns in American history," Speaker Mike Johnson (R-La.) said on Monday.

Guessing the impact

How all this plays out for New York State, and specifically Nassau and Suffolk counties — where 31,000 federal civilian workers live — has been the focus of early, spitball projections.

"The total impact obviously is yet to be seen," Martin Cantor, director of the Long Island Center for Socio-Economic Policy, said of the Long Island consequences. But Cantor estimates the loss of federal employee wages, alone, would amount to 1% of Long Island's total GDP for as long as the shutdown lasts, or about $2.4 billion of the roughly $260 billion GDP on an annual basis.

The Congressional Budget Office is projecting that if the shutdown persists for several weeks, "some private-sector entities would never recover from all of the income they lost as a result of the suspension of federal activity."

And that might be only the beginning of the impact. Even congressional number-crunchers say they have difficulty in trying to tabulate or assign other daily costs from delayed procurements and lapsed federal contracts during a shutdown.

"Long Island overall on a macro sense might not feel an immediate impact," Cantor said. "But in a micro sense," he said, convenience and other mom-and-pop stores, barber shops and small businesses that rely more on the discretionary spending from household budgets "is where the impacts of a protracted shutdown will most definitely be felt."

Strober, of the Better Long Island business group, wrote last week to the Island’s four members of Congress, urging them to "work diligently to end the shutdown," because "the cost of continued inaction is simply too high for the Long Island economy to bear."

Asked about that, Strober echoed economist Cantor that small businesses have already begun to feel pressure. He added that billions of dollars for mass transit in the region are in limbo, along with federal research grants.

Statewide, the projections are just as troubling. White House economic advisers warn there could be a loss of $1.2 billion of economic activity from Niagara Falls to Montauk for each week the U.S. government remains shut — or $5.3 billion per month.

Unemployment in the state would jump by about 2,600 workers a month, according to an analysis by The Council of Economic Advisers, an agency that advises the president.

Small businesses would also face delays with around $140 million in New York in frozen or delayed loan distributions, and federal funding tied to some $468 million worth of government contracts in the state that require oversight and invoicing will stop, adding to lost wages for workers

And the council also reminds there are around 115,000 federal workers in New York, or about 1.2% of the state workforce, and most federal workers will be furloughed or required to work without pay — with many potentially being fired.

Few precedents

A lot of this is uncharted economic ground.

Most federal shutdowns extend for only short periods, rarely more than a day. The longest ever was a 35-day partial shutdown from late 2018 to early 2019, during the first Trump administration. That was a partial closure because five of the government's12 annual appropriation bills were already passed, and agencies funded by those measures stayed open.

Things are different this time. Much more of the federal government is closed because Congress has not passed any of the annual appropriations bills.

Nationally, that partial closure in 2018-19 delayed about $11 billion in federal spending for compensation, purchasing and services, federal budget experts say.

But some of that was reversed by catch-up economic activity after the shutdown ended. Ultimately, the Congressional Budget Office estimates, the permanent loss to gross domestic product was about $3 billion, a tiny slice of the then-$24.4 trillion national economy.

Another difference between then and now is furloughed government workers in previous shutdowns later received their back pay. The delay in their paychecks initially reduced consumer spending, but eventually getting the money helped to reverse that.

This time, President Donald Trump and his administration are challenging whether workers who have been sent home will later receive their missed paychecks.

And potentially even more impactful, Trump and his lieutenants have begun giving notices to thousands of government workers that they are being permanently laid off — and promising more to come.

Michael Feroli, chief U.S. economist at J.P. Morgan, says, "The impact could be worse this time due to the threatened layoffs and actual job loss, which could create risks for the labor market and consumer spending."

Forewarns Strober: "The federal government remains a significant economic force on the Island in ways that may not seem apparent until there is a prolonged shutdown."