This week on Market Insights we take a look at the impact of the government shutdown on the Pentagon through the lens of our North American market analyst and DoD specialist, Shaun McDougall. Shaun has been covering the U.S. defense budget and all things U.S.-military for over 15 years and brings excellent insight into the bigger picture.
The Pentagon is currently experiencing its first complete government shutdown since 2013, raising questions about how the military will function during a period of budgetary gridlock. A more recent partial shutdown occurred in 2018 under the Trump administration, but it did not impact the Pentagon, as a defense appropriations bill had already been passed. This time, lawmakers are gridlocked over disagreements about government healthcare subsidies set to expire at the end of the year.
A lapse in appropriations impacts various components of the complex military enterprise in different ways, from operations and personnel to acquisition. A government shutdown doesn’t mean the military ceases to protect the nation; troops continue to report for duty, and essential military operations carry on. The Pentagon has specifically identified the U.S. southern border and the Middle East as its highest priorities to sustain during the shutdown. The Secretary of Defense is also given flexibility to designate additional activities as necessary to national security. Nevertheless, the disruptions are far-reaching.
Perhaps the most immediate impact is on personnel. According to a shutdown contingency plan drafted by the Pentagon, more than half of the military’s nearly 750,000 civilian employees are subject to furlough. Military members and essential civilian workers will continue working without pay and face a lapse in services, such as some child care on military bases. Although they will eventually receive backpay once funding is restored, the shutdown places undue financial pressure on service members and their families in the short term.
The lack of a budget also negatively affects military acquisition programs and the industrial base that relies on a regular flow of outlays. Work on contracts awarded before the shutdown can continue, but the military cannot award new contracts except for essential items like food, fuel, and medical supplies. This lack of new contracts can result in schedule delays and subsequent cost increases. Large contractors may absorb the hit, but smaller manufacturers and suppliers face greater risks.
There’s a unique caveat to the current shutdown discussion. Roughly $156 billion in defense funding contained in this summer’s reconciliation bill remains available during the shutdown, providing some budgetary relief. The military’s planning guidance outlined its highest acquisition priorities that will be sustained, namely the Golden Dome missile defense system, shipbuilding, and critical munitions. However, work on these programs could still be impacted by contracting staff being furloughed or contractors being unable to utilize some government infrastructure. Some Democrats have also expressed concern that the Pentagon could use the reconciliation bill as a slush fund during the shutdown.
It’s unclear when the government will reopen. Shutdowns in the 1980s typically lasted only a few days, but the 2018 partial shutdown stretched to a record 34 days. Even when this one ends, Congress faces more hurdles. The current debate centers on a short-term stopgap measure, and a final FY26 defense appropriations bill is far from guaranteed. The Pentagon could soon confront another stopgap funding bill, a full-year continuing resolution, or even another shutdown. The road to a finalized budget remains long.
Thank you for reading, and if you are interested in some of our other excellent work at Forecast International, please check out our latest contributions by Anna Miskelley regarding the role of loitering munitions in the war in Ukraine, Vincent Carchidi’s first-part of a two-edition primer on Artificial Intelligence, and Jon Hemler’s explainer of the Modular Open Systems Approach (MOSA) on the U.S. Army’s Future Long Range Assault Aircraft (FLRAA), the Bell MV-75 tiltrotor.
Shaun's deep-rooted interest in military equipment continues in his role as a senior defense analyst with a focus on the United States. He played an integral role in the development of Forecast International's U.S. Defense Budget Forecast, an interactive online product that tracks Pentagon acquisition programs throughout the congressional budget process. As editor of International Military Markets – North America, Shaun has cultivated a deep understanding of the vast defense markets in the United States and Canada. He is a regular contributor to Forecast International's Defense & Security Monitor blog and has co-authored white papers on global defense spending and various military programs.
