A government shutdown may worsen conditions for the already struggling economy of the Washington, D.C., metropolitan area, hammering a region that has been affected by dramatic federal job losses under the Trump administration.
With congressional leaders unable to reach an agreement on federal funding levels and health care policy changes, the government shut down at 12:01 a.m. on Wednesday, with no clear resolution to the impasse or indication of how long it will last. Shutdowns typically involve hundreds of thousands of federal employees being furloughed or working without pay. Meanwhile, the Office of Management and Budget released a memo last week instructing agencies to prepare for mass firings in an as yet unsuccessful effort to pressure congressional Democrats to vote to keep the government open.
There will be gallons of ink spilled over the next days and weeks about which political faction is “winning” the shutdown. While that transpires, the cessation will exacerbate preexisting economic struggles in the region. Although federal workers reside throughout the United States, a large percentage of employees are concentrated in the Washington metropolitan area. Locals call this region the DMV, referring to the intertwined economies of D.C., Maryland and Virginia. The DMV is home to 6.4 million people, and the region is the sixth-largest economy in the country.
Since Trump took office a second time, the DMV region has been particularly hard hit by his efforts to shrink the federal workforce. According to a July report by the Richmond Federal Reserve, D.C., Maryland, and Virginia lost a cumulative 22,100 jobs between January and May of this year. The DMV region’s unemployment has increased at a higher rate than in the rest of the country, in large part due to federal layoffs, according to a recent report by the Brookings Institution.
“The number of people who have maybe already burned through their personal safety net is higher, and so the economic and social harm of a shutdown will be felt sooner,” said Tracy Hadden Loh, a fellow at Brookings Metro and a co-author of the Brookings report.
If the shutdown lasts around two weeks—roughly a full pay period for most workers—Moody’s Analytics has forecast that the impact on the nation’s overall gross domestic product will be relatively low. But the D.C. region will bear the brunt of the hit, said Justin Begley, an economist at Moody’s Analytics who is the lead analyst for the District of Columbia. Nineteen percent of the area’s payrolls are from the federal government, as opposed to just 2 percent nationally.
Although the DMV is a relatively wealthy area, it has significant income inequality and a high cost of living; indications of recent struggle include higher rates of food insecurity and an increased percentage of consumers who have low credit scores this year. Loh said that “shutdowns always make inequality worse,” in part because some of the lowest-wage workers who assist in the functioning of the government are the most vulnerable. Unlike federal employees, contractors and subcontractors are not eligible for back pay for lost wages after the government reopens.
“Those contractors are everyone from who is serving food in, you know, the cafeterias in the federal buildings to janitorial staff, to who is taking care of the landscaping,” said Loh. “Congress will still actually be working during the shutdown. It just won’t work as well, because none of these staff that help the place run will be there.”
Previous shutdowns have had a significant impact on the regional economy. During the 2013 government shutdown, which lasted just over two weeks, the D.C. area saw a five percentage point reduction in personal consumer expenditures, according to a 2023 report by Fiserv. The 35-day government shutdown that spanned the end of 2018 through the first few weeks of 2019 had a dramatic impact on the regional economy. According to city officials, it cost D.C. more than $47 million worth of revenue. Another estimate found that the region lost $1.6 billion in economic activities and earnings during the first 25 days of January 2019, although some of that was recouped when federal employees were repaid.
But the current economic situation could exacerbate the effect of a shutdown. Moody’s Analytics estimates that the district itself will experience a decline in GDP from the second quarter of 2025 through the third quarter of 2026, with federal layoffs leading to a total loss of 35,000 jobs through the third quarter of 2027. In the larger D.C. area, Begley said that projected GDP decline will result in a recession for the second half of 2025. The private sector in D.C. and in the metro area is expected to be largely stagnant.
The Brookings report found that regional private-sector growth has plateaued in recent months, and may be unable to absorb additional federal job losses. Moreover, the industries that have seen the greatest growth, such as construction and hospitality, are not necessarily aligned with the skills and experiences of the federal workers who stand to lose their jobs. These struggles could result in former federal workers—a generally highly educated and high-earning population—leaving the DMV altogether, which in turn would lead to further economic losses in the region.
“I think a lot of federal workers—if they can’t find refuge in the private sector locally—will probably take the approach of, ‘I need to leave this area to find a job elsewhere,’” said Begley. “There’s just generally weak labor demands in the private sector for jobs that are similar to what certain laid-off federal workers may have been doing for the federal government.”
The region’s real estate market is a potential indicator of the uncertainties faced by federal employees. The Brookings report found that the number of homes for sale in the DMV has increased by 64 percent since last June, far outpacing changes in other large metropolitan areas. If enough people leave the DMV, it could result in a brain drain from the second-most-educated region in the country.
“That concentration of smarts is part of what makes America great, that there are all of these super-smart people who want to help the government run as well as it can. And if we lose that, that has implications for all of us,” said Loh.
James Kirwan, a federal worker and labor lawyer, said that this out-migration would be “emotionally impactful” alongside the larger economic implications. “This is where people have made their homes, and their friendships, started families,” he said. “So to be forced to leave this community is unsettling in many regards.”
Kirwan also believes that the continued threat of agency closures and job losses beyond the shutdown is even more concerning to federal workers. “I don’t think this is anything new from what we’ve seen compared to the past nine months,” he said. “It’s just a continued period of concern, rather than a new escalation.”
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