In our Market Minute on Oct. 15, we noted that the first missed paycheck by government workers resulted in the government shutdown going nonlinear and gross domestic product being dragged down by 0.25 percentage points per week.
Now, as the shutdown enters its fourth week and workers are about to miss their second paycheck, that drag is approaching 1% of GDP in the current quarter.
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It’s not just missed paychecks that are creating this drag. Funding for the Supplemental Nutrition Assistance Program, once known as food stamps, is likely to end on Nov. 1, disproportionately hitting lower-income households as their food budgets are strained.
The economic and social costs of disrupting a program like SNAP are apparent, even for a short period of time.
SNAP is a direct transfer program in which taxpayer money is spent locally. Each dollar spent boosts the revenue of small businesses that serve the community, providing employment and paychecks that will be spent again and again.
In economic terms, this is called the multiplier effect, which is especially large for households with lower incomes that spend all their income on essential items.
In 2023, the $111 billion spent on SNAP amounted to 1.6% of total federal expenditures of $6.9 trillion. That money was injected back into the U.S. economy at a rate of $9.25 billion per month, which provided jobs and income both locally and on a larger scale.
At a time when the K-shaped American economy is disproportionately benefiting upper-income households while those with lower incomes struggle, the disruption of a critical transfer program that contributes to the well being of millions of households will contribute to the nonlinear impact on the economy.
