Media Moves

Businesses feel the U.S. government shutdown

October 3, 2013

Posted by Liz Hester

Two days into the partial U.S. government shutdown, the media began to chronicle the effects being felt by various businesses. While it’s early to tell the full economic repercussions of the continued shuttering of government services, those with contracts are already feeling the pinch.

The Wall Street Journal had this story:

The partial shutdown of the federal government is leading to layoffs and production disruptions at defense contractors and some manufacturing companies.

United Technologies Corp. said on Wednesday that it is preparing to furlough nearly 2,000 workers at its Sikorsky unit, which makes Black Hawk helicopters for the Defense Department, and may have to idle several thousand more workers at its Pratt & Whitney and UTC Aerospace units if the shutdown drags on for weeks.

Government workers deemed nonessential were furloughed starting on Tuesday after Congress failed to meet a Sept. 30 deadline for extending government spending authority, and the cuts have spilled over to government suppliers and the companies that cater to them.

The impasse compounds the situation for U.S. manufacturers already nervous about the new health-care law and a wobbly U.S. economy. After hitting a low of about 11.5 million in early 2010, U.S. manufacturing employment recovered to nearly 12 million in mid-2012 but since then has stagnated.

Reuters pointed out that companies that rely on government workers to approve systems and contracts are also hurting:

The U.S. government shutdown is beginning to hit the factory floor, with major manufacturers like Boeing Co (BA.N) and United Technologies Corp (UTX.N) warning of delays and employee furloughs in the thousands if the budget impasse persists.

Companies that rely on federal workers to inspect and approve their products or on government money to fund their operations said they are preparing to slow or stop work if the first government shutdown in 17 years continues into next week.

United Technologies said nearly 2,000 workers in its Sikorsky Aircraft division, which makes the Black Hawk military helicopter, would be placed on furlough Monday if the shutdown continues. That number would climb to more than 5,000 and include employees at its Pratt & Whitney engine unit and Aerospace Systems unit if the shutdown continues into November, the company said in a statement.

UTC relies on the government’s Defense Contract Management Agency to audit and approve manufacturing processes for its military products. The DCMA inspectors were deemed non-essential federal employees and are on furlough, UTC said.

Aircraft maker Boeing said it is taking steps to deal with possible delays in jetliner deliveries, including its new 787 Dreamliner, because thousands of U.S. aviation officials needed to certify the planes have been idled.

 The Los Angeles Times had a story saying that this shutdown could be more damaging to the economy than the last one in 1995:

The last time the federal government shut down, for three weeks in the winter of 1995-96, the American economy felt a jolt but recovered quickly.

Things don’t look anywhere near as promising this time around.

The nation is currently more than four years into an economic expansion with some momentum behind it. That also was the case in 1995. But this time, things are a lot more fragile.

Americans continue to suffer from a relatively high unemployment rate of 7.3%, which is about 2 percentage points higher than in December 1995. Back then, job growth was stronger, the economy was starting to benefit from the tech boom, and baby boomers were entering their prime earning years, not preparing for retirement.

The recovery from the Great Recession has been sluggish and repeatedly held back by political budget battles, but many had been hoping the economy would pick up steam heading into next year. Housing and stock markets have been growing, and consumers have cut their debts and are feeling more confident.

Businesses are going to start to post lower revenues, which caused some investors to begin to sell stocks, according to an Associated Press story:

Wall Street had a message for Washington on Wednesday: end the shutdown and move on.

The markets ended lower as traders, Europe’s central banker and Wall Street chief executives urged Congress to stop the two-day partial government shutdown that has closed national parks, put hundreds of thousands of federal employees on furlough and forced President Obama to cancel an overseas trip.

Wall Street made clear that the longer the budget fight dragged on, the more its bankers worried about significant damage to the economy and the possibility that Congress will not allow the government to borrow more. The financial market says that would be a disastrous move that could send the country into recession.

On Wednesday, the major indexes opened sharply lower, with American lawmakers appearing unwilling to yield in their entrenched positions. After Mr. Obama summoned Congressional leaders to the White House later in the morning, the market started to recoup some of its losses, but the recovery faded in the afternoon.

“The markets are sending a loud message to Washington lawmakers to get their act together and resolve the budget crisis,” said Peter Cardillo, chief market economist at Rockwell Global Capital.

Lawmakers should take businesses, contracts and the overall health of the economy into consideration as they allow the shutdown to drag on. While it’s only been a couple of days, hurting the confidence of global investors could also have long-lasting implications for the U.S. economic recovery. Already we’re likely to see manufacturing loose steam and issues in the defense sector. It would be nice if everyone could just get back to business (and government) as normal.

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