Ruminations on the Federal Shutdown and Its Impact On Federal Contractors

“I should be allowed to shoot my mouth off

I should have a call-in show”

--They Might Be Giants (“I Should Be Allowed to Think”)

I was talking to one of my clients about the renewal of their collective bargaining agreement when they informed me that the Government had issued a stop work order and the employees had been furloughed. That got me thinking more about the ripple effect of the Government shutdown. It is more than its impact on federal employees and the 20 million Americans who get Obamacare subsidies for healthcare. It is more than about owning the liberals and giving it to Washington, DC, by a National Guard occupation, funding cuts, DOGE layoffs, and now furloughs. Simply put -- the pain is more widespread. 

I am not going to mince words. You can shut down the Government, close down all the economic statistics, fake all the data, ignore all the evidence, and lie all you wish, but in the end the economic ruination will become self-evident. It is what it is. This is Mr. Trump’s government and Mr. Trump’s responsibility. A fish rots at its head. The claim that this is the Democrats responsibility and the weaponizing of it as an opportunity to punish “blue” America is itself un-American. And the pretense that the Republicans will negotiate the healthcare issue later, if the Democrats cave, is an obvious fraud, when the open season for 2026 enrollment starts Nov. 15th and brochures need to be printed and distributed now. Now is here!  

There are no official statistics on furloughed federal contractor employees. But anecdotal reports indicate that hundreds of thousands of contract workers are affected. The impact varies widely because contractors are not guaranteed back pay like federal employees. Contractors working on fully funded projects can continue to perform their work. However, work must cease on incrementally funded contracts once the current funding runs out, leading to furloughs for the employees assigned to them. 

Of course, Contractors performing "excepted" activities related to national security or the protection of life and property mostly continue to perform their work. However, contractors performing  work deemed non-essential, like my client, are more likely to be paused. That is the case where the contract requires oversight and supervision by federal employees who themselves have been furloughed.

Government contractors in the past have temporarily reassign employees to other projects or paid them from reserve funds or out of profits. But that only lasts so long. At some point everything goes to zero, as they say, and the workers must be furloughed to cut costs. This impacts the lower-wage workers, such as cafeteria staff or janitors, who are particularly vulnerable to being furloughed without pay. 

This latest October 2025 shutdown reportedly is having widespread effects. I read that analysts from Oxford Economics estimate that up to 10 million private-sector workers in total, including federal contractors, could see their pay affected during the shutdown. Unlike the federal employees, there is likely no back pay for most of these contract workers. While furloughed federal employees are entitled to back pay once the government reopens, unless you believe the Administration is serious about evading the explicit text of the law, contract workers have no similar entitlement. If they are furloughed, their lost wages are typically unrecoverable. Don’t underestimate the impact of that on the economy.  

So, go ahead and  furlough more than a half-million federal employees. Threaten to never make them whole. Stop paying the rest who are forced to work without pay. Lay off additional workers at the Center for Disease Control while putting obstacles in front of people who wish to be vaccinated and suppress the data on spreading diseases. Then stick it to the private contractors and their workers. That seems to be a combustible cocktail of bad things.  

While the stock market rallies in a fit of irrational exuberance, the seeds of the next downturn have been planted. Prudence tells you to plan accordingly.