As Democratic and Republican lawmakers race to avert a government shutdown ahead of the Oct.1 midnight deadline, CBS News' MoneyWatch correspondent Kelly O'Grady breaks down how a shutdown would impact the U.S. economy.

Washington

The US government is facing the possibility of a partial shutdown due to Congress's failure to pass a spending bill. Economic estimates suggest that each week of a shutdown could cost the US economy $7 billion and reduce GDP by one-tenth of a percent. While programs like Social Security and Medicare would continue, federal workers may face delayed pay, with some required to work without immediate compensation.

Indirect effects could include temporary dips in consumer and investor confidence, although markets have historically rebounded after shutdowns. A significant concern is the suspension of key economic data releases, such as jobs reports and inflation figures, which are used by the Federal Reserve to guide interest rate decisions.

How government shutdown would impact economy

Welcome back. The government is inching toward a partial shutdown as Congress has so far failed to pass a spending bill. Congressional leaders met with President Trump yesterday to hash out a deal, but no avail. Now we're tracking what a shutdown could mean for the U.S. economy. So let's bring in CBS News Money Watch correspondent Kelly O'Grady. Kelly, thank you for joining us today. What's at stake here if the government does in fact shut down tonight? So I want to think about this as some of the direct impacts that we might see. So headline here is that the estimate is that for every week that the government is shut down, you would see a loss of $7 billion to the U.S. economy. That's an estimate by EY Parthenon. And generally the rule of thumb is that for every week that the government is shut down, you would see one tenth of a percent of loss in GDP. So if you think about it in context of that, it is not that large. And I will note that once the government does start rebounding and reopening, you do see that pick up rather quickly. But then you also have to think about what happens to you, the consumer, right, with all of the services that you get as a citizen and then the federal workers themselves. So on the consumer front, the things like Social Security checks, Medicare, all of those programs are going to continue. You will still be receiving your checks because those are funded separately. That is something that Congress has already approved without an expiration date. But if you think about the federal worker, there are essential and non-essential workers. Some of those folks are going to have to continue working through the shutdown. Think of your TSA agents. They have to be there for national security purposes. And then they're going to be people that don't work during the shutdown. Both of those sets of people will get back pay once the government reopens. But if you're someone that is a federal worker that's living paycheck to paycheck, you have to dip into your savings. Maybe you make a late payment. The government doesn't pay you back when you make a late payment on your credit card. So those are sort of the direct impacts and the things that might impact everyday Americans, Mugo. And what about those indirect impacts? What are you watching for in the stock markets? Can you hear me? It looks like Kelly cannot hear me. Oh, okay. I can. I can actually hear you now, Mugo. Yes. So I was asking about those indirect impacts. What are we watching for when it comes to the stock market? Yes. So the stock market, you might see a little bit of oscillation, if you will, because if the government shuts down, you often see consumer confidence and investor confidence dip. That being said, if you look at the broad impact over a year, you really do see the market rebound in almost every case positively. So I wouldn't focus too much on your 401k. But the one thing that I do want to highlight, Mugo, is economic data. If we do have a shutdown, the Bureau of Labor Statistics, they get out the jobs report, the CPI, they will actually not do that. And the Fed, of course, we've talked about this many times, they are relying on that data to make interest rate decisions. Wow, very interesting. Kelly O'Grady, thank you so much for that breakdown. Appreciate your time today.

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