The theme of my column this week is this week’s hot news: the government shutdown. I have decided to give some “full disclosure” this week on my forecast for how the government shutdown will tie into business, specifically focusing on how corporate America, U.S. treasuries and the stock exchanges may be affected. I used insight from Wall Street Journal’s corporate intelligence reporters Jacob Bunge, Dan Fitzpatrick, Susan Carey, Jon Ostrower and Andrew Ackerman in this column.
The industrial sector in corporate America is vulnerable to shifts in the economic mood. Manufacturers were slowing down amidst the looming federal fiscal cliff last year around this time. Expect the industrial sector and economy to be negatively affected if the stalemate over the budget is not settled soon. The debt ceiling will continue to limit activity in the industrial sector if action is not taken that will change the economic mood about that as well.
In regard to banking, the government shutdown may create some headaches for borrowers, big and small. This will be due to the delay of loan processing in situations where government units are involved. IRS tax transcripts are examples of missing paperwork that will complicate loan processing.
We can expect our judicial branch to be the most spared from disruptions amidst the government shutdown. However, the judiciary may be operating frugally through the first week of the shutdown. If the government stays shut down for longer, things may get more complicated.
During the government shutdown, defense contractors will be prevented from awarding new programs and extending existing business. The shutdown may also pause the approval of any new plans in the energy industry.
U.S. stock and derivatives exchanges will continue to trade amidst the U.S. government shutdown, officials have said. Some regulatory activities will slow. Furthermore, the market for U.S. Treasury bonds will stay open. However, bond analysts may miss out on monthly jobs reports if the shutdown lasts until tomorrow, Oct. 4, as reported by the WSJ.
Air travel and the food business should continue to operate as normal. However, the 825,000 or more federal workers likely to be furloughed in our U.S. government shutdown will be valued customers that may be potentially lost in these industries. This will hurt airlines more than restaurants, as this amount of workers that may go without pay is small fraction of the consumer economy.
The key implication in these forecasts is that the government will only be shut down for a short period of time. Of the 17 government shutdowns that have occurred since 1976, most have lasted only a few days, according to Morgan Stanley. If the shutdown lasts less than a week, it’s likely that it won’t have a significant impact on the economy, according to economists’ estimates.
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