Shutdown Likely Benign for Economy, Brutal for Operators
If you were watching TV last night, it was probably hard to avoid President Donald Trump’s primetime address about border security. What started as a campaign promise in 2015 is now at the center of a government shutdown that just became the second-longest shutdown in history at 19 days (the longest was 21 days).
Historically, shutdowns don’t affect the economy drastically. Some research from the Committee for a Responsible Federal Budget surveyed analysts in 2013. Respondents said each week of a shutdown shaves about 0.1 to 0.2 percent off the overall GDP. And if the furloughed workers receive back pay, there is usually a slight uptick in economic activity as those workers return to their habits and take care of their pent up demand.
But in the meantime, that’s a lot less money flowing into markets with a high population of federal workers. In all, there are about 800,000 federal employees that are going without pay, either staying home or working “essential” jobs in the TSA and other important roles.
A report from Wallethub, a financial advising and credit score tracking company, laid out the markets most affected.
The Washington D.C. area has obviously seen the brunt of the shutdown as scores of government workers live in and around the area. But furloughed worker is only one metric. the amount of federal dollars flowing into markets, the level of SNAP (food stamp) users, active real estate markets and areas near national parks all play into the rippling effects of the shutdown on a given market.
According to Wallethub, that combination of effects puts New Mexico as the second hardest hit area. Maryland is just behind as are Hawaii and Alaska.
For businesses near national parks, the shutdown is a one-two punch. Federal workers are furloughed and there is much less vacation traffic passing through to see the parks. There are many restaurants shortening their hours or shutting down altogether in tourist-heavy areas near these parks. Maybe those businesses will be a feeding frenzy when those workers get back pay, but a shocking traffic drop during the holidays could mean a slip in same-store sales at the end of the quarter.
Slow economic activity, however, might not be the greatest headache during the shutdown. As every business owner knows, it’s tax time.
While the IRS has been directed to issue tax refunds during the shutdown, it might not have the bandwidth to do so. According to CNBC, just 12 percent of the typical tax-time workforce remains.
According to a large, commercial accounting firm, business taxes are a mess. Operators paying taxes are still getting automated notes saying that they haven’t paid and will face a lien on their businesses. While it’s likely that any oddities will be forgiven, it’s an incredible headache for owners.
The Small Business Administration is also closed. According to Forbes, that has slowed loan origination down precipitously. In November, approval rates for small business loans were higher than 50 percent; in December that slipped to 0.3 percent as everything flowing through the SBA is simply stopped.
Operators looking for startup or operating cash via the SBA could see months of issues as the backlog is sorted. Any operators facing issues should contact their vendors and landlords immediately so there aren’t surprises when it comes time to pay rent or bring in more inventory.
There are other effects, too. The FDA has stopped doing routine checks, airport workers are threatening mass “sick out” protests and the Department of Agriculture is delaying major crop reports that commodity traders rely on. Federal workers will miss another paycheck come January 11, the same day the shutdown ties the longest government shutdown in history.
Have you been affected by the government shutdown? Let us know how and what you’re doing in the comments section below.