The last government shutdown, even though it was the longest in U.S. history, left defense contractor Lockheed Martin largely unscathed.
That may not be the case if there’s another one in less than two weeks, CEO Marillyn Hewson warned investors in late January, after the Bethesda, Md.-based company predicted sales would reach $57 billion this year: “It is possible we could see some delays in 2019 awards and orders.”
The risk can’t be dismissed lightly. The deal that Congress struck with the White House to reopen government agencies from the National Aeronautics and Space Administration to the Securities and Exchange Commission allowed only until Feb. 15 to negotiate necessary funding, and Trump has already threatened another partial shutdown if the bill doesn’t include money for a barrier he promised during his 2016 campaign to build between the U.S. and Mexico.
That’s an outcome business executives, economists, and many lawmakers hope to avoid: “We continue to advocate for stable and consistent budgeting that enables U.S. government agencies and the industry to plan, invest and execute with confidence,” Hewson said.
The previous closure, which left 800,000 workers without pay from Dec. 22 through Jan. 25, shaved as much as $1.2 billion a week from the U.S. economy. By the time it was over, the cost of $6 billion outstripped the $5.7 billion that Trump demanded for his wall.
Approvals for new medicines were delayed for almost a month, along with reviews of corporate mergers and stock offerings and even licenses required to sell new craft beers across state lines. While much of the direct cost of the shutdown might be recouped as workers gather back pay and make purchases they delayed, more subtle effects such as the loss of business confidence are harder to assess and could be exacerbated by a recurrence.
A further complication is the federal debt ceiling, which was was lifted for a year in 2018 and will be reinstated on March 1, capping government borrowing at the amount outstanding as of that date. U.S. debt totaled $21.5 trillion as of November, according to the Federal Reserve Bank of St. Louis.
Previous debt-ceiling standoffs between Democrats and Republicans have forced the Treasury secretary to resort to so-called extraordinary measures, such as halting the issuance of new securities, which count against the limit, and delaying some investments in a government retirement plan, in order to make payments on existing debt.
Addressing the limit against the backdrop of a second government shutdown might raise the risk of “political brinkmanship like we’ve seen in the past,” Bill Foster, an analyst with debt-rating firm Moody’s, told the Washington Examiner.
While Moody’s expects the debt ceiling would eventually be raised, using it as political leverage can damage the appearance of U.S. institutional strength to people and firms funding the government’s operations through the purchase of bonds and other securities. After one standoff over the debt ceiling in 2011, Moody’s rival, Standard & Poor’s, stripped the U.S. of its top rating.
As with consumer credit scores, such an action would typically force borrowers to pay higher interest rates, though it had little effect on the U.S. Backed by the world’s largest economy, the country’s debt is typically viewed as among the least risky on the market.
Still, the debt-ceiling debate and the shutdown both are “representative of a fiscal policymaking process that’s open or susceptible to political brinkmanship,” Foster said. “That makes it less predictable.”
A second shutdown could have a more severe impact than its predecessor, Moody’s noted in a report that Foster co-authored. “Consumption and investment would likely take a hit if U.S. consumer and business confidence is rattled,” the firm noted, effects that could be worsened by a sharp drop in U.S. stock markets.
Indeed, in the two days from Trump’s refusal to sign the spending bill that would have prevented the last shutdown and the start of the closure, the Dow Jones Industrial Average tumbled 3.8 percent and the broader S&P 500 slid 3.6 percent.
“It’s critical that a deal gets done in this three-week period, as I fear a second shutdown would have a further negative impact on consumer confidence and, in turn, on the U.S. economy,” Al Kelly, the CEO of card-processing network Visa, said at the end of January. The San Francisco-based company processes $2.9 trillion payments a year, offering a window into the ebbs and flows of economies around the world.
The closing, combined with confusion about Britain’s exit from the European Union and slowing growth in China, “are starting to have an impact on market sentiment,” he said.
Investment bank Goldman Sachs predicts House and Senate negotiators will come up with a bill that increases border security without explicitly paying for a border wall — a sticking point for Democrats who have described it as both racist and inefficient — and that lawmakers from both parties will support it. What happens next, however is less certain.
Economist Jan Hatzius sees only a 35 percent chance that Trump, who was widely blamed for the shutdown, accepts that outcome and moves on. Most likely is that he approves the spending package and then uses his emergency spending powers to pay for the wall, though there’s at least a 25 percent chance he would reject the deal and the government would close again, perhaps for weeks.
“Does anybody really think I won’t build the wall?” the president said in a Twitter post two days after the shutdown ended. “Done more in first two years than any president.”
