The situation: The federal government will shut down Wednesday unless Congress passes a spending package for FY 2026 or a short-term extension, known as a continuing resolution. A US shutdown would force many agencies and activities to cease operations until Congress approves new funding.
Most shutdowns have little to no significant impact on consumer spending and the broader US economy, but this one could be different.
Zooming in: There’s no one playbook for shutdowns. Each federal agency develops its own plan, deciding which services it continues, which to pause, and which employees are furloughed in the lead-up to a shutdown.
- Administrations vary in how much disruption they allow to highlight the other side’s refusal to compromise. In 2013, for instance, the Obama administration closed more than 400 parks, monuments, and historic sites, turning away millions of visitors and costing an estimated $500 million in lost spending, per the Committee for a Responsible Federal Budget. Other shutdowns have delayed Social Security and Medicare services, stalled food inspections, and blocked IRS income verifications.
- This time around, President Donald Trump has promised to break with precedent and embark on mass layoffs of thousands of federal workers rather than furloughs.
That would significantly raise the economic cost and pain of a shutdown. While shutdowns usually disrupt operations, they rarely move key gauges of the US economy like GDP or unemployment. But if Trump follows through on layoffs, Goldman Sachs estimates the jobless rate could rise as much as 20 basis points—adding strain to an already fragile labor market.
The ripple effects: Shutdowns often strain air travel even though air traffic controllers and Transportation Security Administration (TSA) agents are typically required to work without pay.
- During the 2018–2019 shutdown, for example, TSA call-outs forced checkpoint closures, and controller absences briefly shut New York’s LaGuardia and caused delays nationwide.
- A shutdown could prompt 3 in 5 (60%) travelers to cancel or avoid air trips, per an Ipsos survey. That pullback could cost the economy $1 billion a week in lost activity from air and rail disruptions and the closure of parks and museums, the US Travel Association warns. Fewer trips ripple outward, hurting hotels, restaurants, and retailers.
- This comes as the industry is already reeling from weaker international demand, partly driven by anti-American sentiment. In May, the World Travel & Tourism Council estimated the US was on track to lose $12.5 billion in international visitor spending this year.
The broader fallout: An extended shutdown could weigh heavily on the retail industry, whether or not Trump follows through on layoffs.
- Even furloughs carry consequences. Delayed paychecks strain household budgets, and contractors have no guarantee of backpay, adding pressures on growth.
- Layoffs would cut deeper. Swelling unemployment rolls would reinforce the sense of a weakening labor market. That perception can snowball, leading consumers—who are already pulling back because of tariffs and rising costs—to spend even less during the critical holiday quarter.
Our take: With tariffs, softer international travel, and shaky consumer confidence already clouding the outlook, retailers and travel companies were bracing for a tough holiday season. A shutdown would only add pressure by tightening wallets right when retailers and travel companies are counting on a holiday boost.
Go further: Listen to the “Reimagining Retail” episode “From Discounts to Emotional Marketing: What Retailers Should Be Focusing on This 2025 Holiday Season” and read our Holiday Shopping 2025 report.