Economic Outlook for Q4 2025
Quarterly Economics Briefing–Q4 2025
Posted Date: December 9, 2025
Key Themes and Takeaways
Government shutdowns are not rare, but past government shutdowns have had only limited or temporary impacts on the economy and minimal impact on workers compensation.
Although the 2025 government shutdown was the longest in history, increasing economic uncertainty, we see little reason to suspect that 2025 will prove different from prior years.
Government Shutdowns and Their Economic Impact
With economic uncertainty already a top workers compensation industry concern, the recent government shutdown has added further angst despite surprisingly solid Gross Domestic Product (GDP) growth in Q2 and through most of Q3. The 2025 government shutdown was the longest government shutdown in history, lasting for 43 days. While government shutdowns have not been rare over the past several decades, most are short-lived, and the general consensus suggests that impacts to the economy grow the longer the shutdown persists. In this brief, we will look at the recent history of government shutdowns to assess the potential impacts of the 2025 shutdown on the economy and on workers compensation.
A Brief History of Government Shutdowns
In the United States, a government shutdown occurs when funding legislation is not passed to fund the government’s operations. Without funding, non-essential workers are furloughed until funding is restored. Essential workers continue to work, but they do so without pay for the duration of the shutdown. Essential workers are those that protect human life (such as air traffic controllers) or property (such as law enforcement).
Since 1980, there have been 11 funding lapses of more than one day that have resulted in the government shutting down and employees being furloughed. While most were solved within days of starting, there are several notable shutdowns lasting for a significant period of time. The 1995–1996 shutdown lasted for 21 days, the 2013 shutdown lasted for 16 days, and the 2018–2019 shutdown lasted for 34 days.
The Economic Impact of Extended Government Shutdowns
In April 2019, following what was then the longest shutdown in modern history, we published a Quarterly Economics Briefing on the economic and workers compensation effects of government shutdowns.1 In that brief, we likened government shutdowns to hurricanes, something that the property/casualty industry is intimately familiar with. Like natural disasters, government shutdowns impact certain people, locations, and industries more than others. Also, like natural disasters, the immediate negative impacts at the micro level are often short-lived and can reverse after the fact, resulting in only minor impacts to the economy on a macro level.
1 “The Economic and Workers Compensation Effects of Federal Government Shutdowns”, Quarterly Economics Briefing, Patrick Coate, ncci.com, April 19, 2019
In 2018, real GDP decelerated in the 4th quarter while workers were furloughed and paychecks held. But GDP immediately rebounded in the first quarter of 2019 upon resolution of the shutdown. Consumer spending likewise declined sharply in December 2018 before rebounding in early 2019, fully recovering from the decline by March 2019. Additionally, no lasting impact can be seen in the data as consumer spending and economic growth continued to accelerate throughout the year.
Will this time be different? We don’t think so. Government shutdowns typically represent a delay of economic activity, rather than an outright loss. Following the 2018–2019 shutdown, Congress passed the Government Employee Fair Treatment Act of 2019, guaranteeing immediate back pay for federal workers furloughed during a lapse of funding. Immediate back pay allows federal workers to reverse any decline in personal savings or increase in debt during the shutdown.
The timing of the 2025 shutdown is also noteworthy because the resolution came early enough in the quarter (November 12) that official statistics may not show as large of an impact on the economy as we saw in 2018. With back pay checks reaching workers and disruptions to travel diminishing ahead of the important holiday period, the economic impact of the shutdown may be concentrated within a single quarter and be even less visible in the data.
The Potential Impacts on Workers Compensation
With limited impacts on the overall economy, do government shutdowns have a greater impact on workers compensation? The answer is likely similar to the conclusions in our 2019 brief. The resolution to end the shutdown included protections for workers who were fired during the shutdown. We therefore expect to see limited impact on current trends in employment and wages from the shutdown. Further diminishing the impact on workers compensation, many federal agencies are self-insured, limiting the potential impact to premium collected.
Conclusion
The 2025 government shutdown became the longest in modern history, eclipsing the 2018–2019 shutdown by nine days. While shutdowns have direct, negative implications for the employees who are furloughed and their local communities, these impacts are largely temporary and have a minimal lasting impact on the macro economy. The timing of the resolution to the 2025 shutdown may also further diminish the impact on the overall economy in Q4. For workers compensation, the temporary furloughing of workers with collected back pay has minimal impacts on employment and wage trends. While government shutdowns are headline grabbing events, they have typically not had lasting material impacts on the economy.