UVA experts warn shutdown could stall Virginia’s economy

University of Virginia experts say the ongoing federal government shutdown, now more than three weeks old with no sign of resolution, will likely have long-lasting effects on Virginia’s already slowing economy.

The shutdown could have far-reaching effects on Virginia’s economy if it continues into the holidays, say Ian Solomon, dean of the Frank Batten School of Leadership and Public Policy, and Eric Scorsone, executive director of UVA’s Weldon Cooper Center for Public Service. (Contributed photos)

“An extended government shutdown has a negative impact on overall economic growth and on anybody who needs government services,” Ian Solomon, dean of the Frank Batten School of Leadership and Public Policy, said. “The overall decline of economic growth hurts everybody.”

“Keep in mind that in the first few weeks, only about 25% of the government was affected. As this goes on, it could cause more problems,” said Eric Scorsone, executive director of UVA’s Weldon Cooper Center for Public Service and an associate professor of public policy at the Batten School. “We have to look at trends and policies and do our best to understand what’s happening. … But there are concerns that 2026 is going to be a tough year for Virginia. It may pick up in 2027, assuming the national economy picks up at that point.”

Forcasted Employment Growth: Virginia vs U.S.

Although the shutdown’s effects are expected to be felt across the country, the economies of Maryland and Virginia are closely linked with the federal government and will likely be hit harder.

Analysts at the Weldon Cooper Center predicted in their recent quarterly report, completed before the shutdown, that the U.S. and Virginia economies would slow through the rest of the year and into 2026.

The report predicts Virginia’s gross inflation level will remain below the nation’s average, but unemployment could reach 4.8% in 2026 – the state’s highest rate since 2021.

The report projects the state’s unemployment rate will peak at 5% in mid-2026 – the highest level since 2020 – before beginning to improve in 2027.

Observed and Forecasted Unemployment in Virginia, 2024-2027

Much of the expected downturn stems from federal layoffs and delayed tariff hikes first announced in early 2025. Federal unemployment numbers are expected to rise in the next three months, as official counts begin to include furloughed workers and deferred resignations.

“Government is very different than most other industries because cuts may be announced but never implemented or stopped by the courts. We think there will be more cuts, because that seems to be the intention,” Scorsone said. “We expect next year to be slower because the national economy is slowing.”

The current shutdown is the nation’s 12th since 1980. The longest shutdown was in 2018, during President Donald Trump’s first term, and lasted 35 days.

Currently, the U.S. Senate requires 60 votes to pass the Republican-drafted budget bill. With 53 Republicans, 45 Democrats and two independents, the bill cannot be approved without a combination of at least seven independents and Democrats voting for it, assuming no GOP defections.

Democrats have insisted Congress address continuing subsidies for Americans who purchase their health insurance through the Affordable Care Act. Those subsidies are not included in the proposed budget plan. Republicans have insisted they will only negotiate the subsidies after the budget bill is passed.

In the meantime, an estimated 750,000 federal employees are being furloughed, according to the Congressional Budget Office.

The shutdown comes at a time when the stock market and the nation’s economy are booming for some and not for others, Solomon noted. “We have gasoline being poured on the economic fire from corporate investments in AI and new power plants. We have water being poured on that fire from government shutdown and layoffs and reductions in force, and tariffs. It’s hard to know how this is all going to net out.”

Solomon said previous shutdowns have had negative effects on economic growth.

“Most financial institutions, when they’ve analyzed past shutdowns, have shown pretty consistently that if there are government furloughs or reductions in force, you will see a decline in economic growth,” Solomon said.

Exactly how the shutdown will affect the average person depends on that person’s circumstances, Solomon said.

“If you are a person who depends on food support programs or housing support programs or have a personal issue where you can’t get the services you need, you’ll feel more of an impact. You’ll need to consider what your alternatives are,” he said.