Not All Bad News: How the Government Shutdown Affected the Economy and Business

shutdownAlthough the shutdown may be over, businesses affected by the 16-day government standstill are still recoiling from the damage. Some industries, such as defense contractors, travel and hospitality, sustained more of the brunt than others, but virtually every sector was affected by the shutdown in some way. With only a temporary agreement in place, many business owners are moving cautiously and watching the headlines going forward into the final quarter of the year.

GDP, Growth and Hiring See Decreases Across the Board

From a pure numbers perspective, both the GDP and economic growth were severely negatively impacted by the standoff. Standard & Poor estimates that the 16-day shutdown cost the economy $24 billion, or $1.5 billion per day, and that annual growth for the quarter took a .6% hit.

To compound the damage, the September jobs report showed that hiring had slowed significantly from earlier months of the year. The shutdown likely depressed that number further, as Congressional uncertainty lingers. The budget deal will keep the government running until January 15, and the fear of another prolonged impasse will discourage employers from hiring, particularly government contractors. Until a broader compromise can be reached, business will suffer some ongoing concerns about the future business climate.

Low Consumer Confidence Could Impact Holiday Spending

Consumer confidence dropped to the lowest point in nearly 2 years, according to Gallup. This drop puts many businesses and the economy at large in a precarious and uncertain position as we head into the holidays. Just a few days into the shutdown, According to the National Retailer Federation, only the collapse of the Lehman Brothers in 2008 had such a drastic impact on consumer confidence in such a short period of time.

As businesses look ahead to the 2013 holiday season, retailers have reason to be nervous about low consumer confidence. When confidence drops, spending traditionally drops as well, and the stagnant growth since the end of the recession doesn’t promise any quick recovery. Despite this, retailer and consumer groups are projecting a 20% increase in business from 2013 holiday season, and upticks in revenue across the board for most industries.

According to a survey conducted by the International Council of Shopping Centers and Grocery Stores, 40% of Americans curbed their spending as a direct result of the shutdown, but some socioeconomic groups were more immunized against the ramifications of the shutdown than others: 50% of those earning $35,000 per year or less said they curbed their spending, compared to about one-third of those who make more than $100,000.  Auto sales also dropped in the first and second week of the shutdown.

Home sales also slowed; the Mortgage Bankers Association revealed that applications for mortgages during the shutdown were at their lowest point since 2007 – well before the 2009 recession that rocked the housing industry.

Travel and Tourism Businesses Most Vulnerable to Government Shutdown

The travel and tourism industry was hit especially hard by the shutdown. The U.S. Travel Association has estimated that the 16-day shutdown sapped $2.4 billion from the travel industry alone, about 10% of the total estimated economic impact for the country.

All 401 parks were closed for the duration of the shutdown (except the Statue of Liberty and the Grand Canyon National Park, which were re-opened midway through). This disruption prompted many travelers to cancel their plans entirely. Typically, about 715,000 people per day visit any one of the hundreds of national parks and their surrounding areas, and the National Park Service lost about $450,000 per day in entrance and service fees.

Unlike federal contractors, these small businesses aren’t guaranteed to receive lost revenue when the dust settles. Businesses in the surrounding area of the Great Smoky Mountains National Park are expected to have missed out approximately $33 million in lost revenue from tourists.

Small Business Administration Loans Rushed Through

It’s not all bad news. Many small business owners and lenders rushed to get Small Business Administration (SBA) loans through their local banks processed before October 1. This preemptive action flooded $625 million in capital into the market, and SBA loans were up to $2.4 billion in September, a $1 billion jump from August.

Overall, the economy took a hit and normal business was disrupted, but  the U.S and broader global economy is fundamentally strong and has seen a steady expansion and improvement both since the government shutdown and since the 2008 recession.  As such, smart businesses are not playing victim to the hiccups created by the government, but are rather planning their expansion based on their own unique opportunities and horizons.

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