VOL. 128 | NO. 193 | Thursday, October 03, 2013
US Businesses Worry About a Prolonged Shutdown
JOYCE M. ROSENBERG & SCOTT MAYEROWITZ | AP Business Writers
NEW YORK (AP) – As the government's partial shutdown enters a second day, most companies across the country are doing business as usual. Yet concern is rising that a prolonged shutdown would cause some work at private companies to dry up and consumers to lose faith in the U.S. economy.
Many of the 800,000 government workers without paychecks would no longer shop at malls, buy cars or splurge on dinner out.
"They're not getting a paycheck, they're probably going to be cutting corners immediately in all areas, and dining out will probably be one of those," said Don Davey, who owns 20 Firehouse Subs franchises in Florida and Wisconsin.
If sales drop, Davey said he'll have to reduce the hours his 250 staffers work.
"Some of our employees could be making less money as soon as next week," he said.
For each week the government remains shut, the U.S. economy would lose 0.15 percent of annualized growth, David Stockton, a former research director at the Federal Reserve who is now at the Peterson Institute, estimates.
Consultants on some government projects have stopped flying and staying at hotels. And vacationers looking to spend money at national parks are being forced to re-route their itineraries.
For some executives, there is the frustrating sense that the federal government has become a sad joke.
"Here we go again," said JetBlue Airways CEO Dave Barger. "Business customers, leisure customers – people want predictability. It's really frustrating."
With no one sure how long the standoff in Washington will last, companies large and small are gauging the effects of a shutdown that endures more than a week or two.
Steve Silberberg, who owns a company based in Hull, Mass., that runs hiking trips in national parks and forests, said a shutdown that lasts three weeks could force him to cancel a trip planned in November in the Ouachita National Forest in Arkansas. The forest is closed, and rangers can't issue a permit for Silberberg's company, Fatpacking, to run the trip for 12 hikers.
Silberberg stands to lose about $12,000 in revenue if he has to cancel. And the guides he plans to hire for the trip wouldn't be paid.
"I'm guardedly optimistic that it won't last long," Silberberg said.
The partial shutdown has put Mark Moore's government contract bids in limbo. Moore's company, Kavaliro Staffing Services, based in Orlando, Fla., is awaiting a decision on more than $500,000 in contract bids on defense-related projects.
Under the contracts, Kavaliro would place 20 to 25 information technology workers at government sites nationwide. Moore already knew it could take weeks or months to get a decision. The shutdown will extend the wait.
"It's pretty hard for the government to award contracts when they're not working," Moore said.
Defense contractors like Lockheed Martin Corp., Northrop Grumman Corp. and Raytheon Co. have no plans to shut down soon. But eventually, money would run out to build tanks, ships, planes and weapons.
"The overarching issue is how prolonged it is," said John Dern, a spokesman for Boeing Co.
Boeing's commercial side – and its airline customers – might endure more headaches from the shutdown if Federal Aviation Administration officials can't certify its newest version of the 787 Dreamliner.
In a note to clients, William Loomis, a managing director with Stifel Nicolaus and Co., warned that if the government can't pay its bills, major contractors would be hurt.
Jay McCanless, an analyst with Sterne Agee, noted that Federal Housing Administration-backed mortgages account for one-third of new-home purchases. Because of the shutdown, only 67 of 349 employees will keep approving those loans.
That could eventually hurt sales, McCanless wrote in a note to investors, for builders like Beazer Homes USA, KB Home, Lennar Corp. and D.R. Horton.
The FHA itself foresees "a decline in home sales during an extended shutdown period, reversing the trend toward a strengthening market that we've been experiencing."
Buyers wouldn't disappear. But some would linger in limbo until the government reopened and a backlog of applications cleared. A lack of homebuyers could hurt stores like Home Depot and Lowe's, along with retailers that sell furniture and televisions.
Apart from federal workers, many consumers may start to worry about the economy and pull back on spending, Davey said.
"A lot of people are now just feeling like they are getting back on their feet," he said. "It seems like every time we get back to somewhat normal, we get some type of squabble in Washington that brings back to a head."
Yet others express confidence that the shutdown will cause little pain beyond the Washington area, with its hub of government workers and federal contractors.
Earlier this year, when across-the-board government spending cuts kicked in, some worried that the cuts would derail the U.S. economy, noted Jim Lentz, Toyota Motor Corp.'s CEO in North America.
"Basically, they were told that when you wake up tomorrow, the Earth is going to stop spinning," Lentz said. "For the most part, the Earth didn't stop. And I think that's how they view this again."
AP Business Writers Tom Krisher in Detroit and Marcy Gordon in Washington contributed to this report.
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