A federal government shutdown looms, and while understanding the politics of it all is a matter for the crew over at Washington Wire, its impact on American businesses is something Corporate Intelligence will be watching closely. We asked our reporters for a look at how each industry will feel the impact of Washington closing up shop, and we’ll post the updates as they come in.
The industrial sector is always vulnerable to shifts in the economic mood, and this marks the third year running that is prospects have been shaped by struggles in Washington, report’s the WSJ’s Bob Tita:
For the third straight fall the industrial sector is dialing back in response to a federal stalemate over the budget or the debt ceiling. Last year, manufacturers were on pins and needles over the looming federal fiscal cliff caused by automatic reductions in federal spending without a budget deal. The year before that, the extended debate over raising the federal debt limit brought industrial activity and the rest of the U.S. economy to nearly a standstill.
This year a stalemate over the budget and the debt ceiling threaten to run the U.S. economy aground.
“Failure to act could have significant implications on the U.S. economy,” heavy-equipment manufacturers Caterpillar Inc.CAT +0.68% said Monday . “It is imperative that Congress and the [Obama} Administration work in a bipartisan manner to develop a long-term plan that establishes sustainable fiscal policies.”
Caterpillar has been hit pretty hard by the slowdown in mining, and could use some help on the construction side. But if consumers and businesses lose confidence in the government and the economy, they may hold off buying a new home or building a new plant or high rise.
“Normally, government is incrementally positive for economic growth, but it’s been a fairly substantial drag on growth” lately, said Kenny Vieth, president of ACT, which forecasts demand for heavy duty commercial trucks (which is not going up). The Indiana-based firm now expects 252,000 heavy-duty trucks to be built this year, compared with an earlier estimate of 261,000. In the likelihood that the weakness persists, it would spill into early next year. So, ACT took down its 2014 projection to 281,000 trucks from 298,000.
They may not seem like much of an economic indicator, but demand for trucking is. When companies expand production, in response to demand from businesses and consumers, they typically need more trucks to ship goods to customers or receive supplies. The slow-growing U.S. economy has kept production of new trucks far from its pre-recession levels.
ACT decided to scale back its earlier forecasts after noticing truck manufacturers’ 2013 forecasts falling this summer. The firm believes disruption of the federal government is likely to accelerate the decline in orders not just from the private sector, but the public one, too. State, federal and local governments consume a lot of goods and services and if they scale back because of the shut-down, they won’t need as many trucks, which isn’t good news for the companies that make big engines, wheels and all the metal and components that go into them.