CEOs Say Federal Shutdown Poses Risk to Economic Rebound
Chief executive officers at companies ranging from Honeywell International Inc. (HON) to JetBlue Airways Corp. (JBLU) said that a prolonged shutdown of the U.S. government has the potential to jeopardize the economic rebound.
The government yesterday began idling as many as 800,000 federal employees after Congress failed to break a partisan deadlock over whether to tie any changes to President Barack Obama’s health-care law to an extension of government funding.
Even Foot Locker Inc. (FL) CEO Ken Hicks, who has lamented aspects of the 2010 health-care legislation, saying it won’t curb rising costs, said the government shouldn’t be shut down over the dispute. It could hurt a fragile recovery in what he calls challenging times.
“Am I happy about the higher cost and lower level of care that people will get because of the Affordable Care Act? No,” Hicks said in a phone interview this week. “But is it worth shutting down the government over? No.”
The first partial shutdown in 17 years may subtract as much as 1.4 percentage points from economic growth, depending on its length, according to Guy LeBas, chief fixed income strategist at Janney Montgomery Scott LLC in Philadelphia. A lengthy budget fight risks damping consumer sentiment, cooling the auto market, restraining sales of luxury goods and hurting travel.
“If this lingers for a while, it endangers the economic recovery at best,” JetBlue CEO Dave Barger said in an interview. “If this percolates into the psyche of business and everybody starts to back off travel spending and it can trickle down to others. This is really serious.”
That echoed remarks by David Cote, chief executive of Honeywell, the Morris Township, New Jersey-based manufacturer, who said Sept. 30 that a fiscal impasse may plunge the world’s largest economy into recession.
“Everyone will get more conservative and pull back on hiring and investing,” Cote, who served on Obama’s bipartisan National Commission on Fiscal Responsibility and Reform, said in an interview with Bloomberg Television’s Trish Regan.
Even if the budget fight is resolved, lawmakers would immediately move to the next dispute over raising the $16.7 trillion debt ceiling.
It also would be a “horrible idea” to block a boost in the federal debt ceiling, as some lawmakers vow to do, Cote said. “When you hear people starting to think that maybe we should default or not raise the debt ceiling and we will play chicken with it, are you actually serious?”
The federal work stoppage has forced United Technologies Corp.’s Sikorsky Aircraft business to slow production of its Black Hawk helicopters,
“The immediate impact of the U.S. government shutdown on Sikorsky is only manageable for a short time,” Paul Jackson, a spokesman for the Stratford, Connecticut-based division, said in an e-mail yesterday.
Sikorsky won an $8.5 billion, five-year contract to build Black Hawks for the U.S. military last year. It slowed work on the aircraft after Defense Department inspectors were furloughed under the shutdown, Chief Financial Officer Gregory Hayes said yesterday at a meeting with analysts and investors in Monterrey, Mexico.
Chances of a last-minute deal -- seen so often in past fiscal fights -- evaporated shortly before midnight on Sept. 30 as the House stood firm on its call to delay major parts of Obama’s Affordable Care Act for a year.
“We are optimistic that our government leaders will come together in support of a solution that funds the U.S. government and avoids significant disruptions to our still-fragile U.S. economy,” Erich Merkle, Ford’s U.S. sales analyst, said in an e-mail.
Kurt McNeil, GM’s vice president of U.S. sales, said the company has “some amount of faith that the right things will be done and done quickly to resolve all that.”
“If this thing drags out a couple of weeks, it starts to have more impact on customer sentiment and it starts to have a bigger impact on business,” McNeil said on a conference call to discuss September auto sales yesterday.
Consumer confidence and spending both were restrained during the 1995-1996 shutdowns. That didn’t drag down the stock market, however. The Standard & Poor’s 500 Index was little changed from Dec. 16, 1995, to Jan. 6, 1996. Yesterday, the index gained 0.8 percent at the close in New York.
The effects may first be felt in the Washington area, where many of the 800,000 federal workers who are furloughed reside.
Teresa Johnson, a 47-year-old employee of the Transportation Security Administration who lives in Virginia, said a shutdown would affect her “greatly.” She has a mortgage payment and is the sole provider for her two daughters, one of whom is in college.
“I’m very concerned because I don’t know if I’m getting a paycheck,” Johnson said in an interview. “In the back of my mind, I have to limit my spending because I don’t know what’s going to happen.”