As if the holiday season isn’t stressful enough on its own, just days before Christmas 2018, the government announced a shutdown. In order to keep functioning and allocating funds, the government must agree on a spending plan. A shutdown occurs when funding for certain branches of the government do not receive authorization. Thus, when there is a standstill due to opposing political stances, federal agencies must suspend operations until an agreement is reached and funding is authorized.
A shutdown has many repercussions. Most US citizens go on with their daily lives, with not much to notice; for those that work for the government, however, it is much more burdensome. Often, government workers are furloughed or required to work without pay if their role is considered essential to national health or security. Ramifications can also be seen and felt throughout the supply chain, especially when a shutdown lasts more than a few days. The 2013 shutdown, which lasted 16 days, illustrates this. The impasse paralyzed container ports on the west coast, and according to Moody’s Analytics, cost the economy upwards of $23 billion. It also took four months for the economy to recover.
The Effects of a Lengthy Shutdown
A shutdown lasting over a month is worrisome, according to economists. This past shutdown lasted 35 days, which is the longest in US history. Shutdowns that last this long lower investor and consumer confidence. Moreover, government data, which the private sector relies on to understand trends in the broader economy, is delayed with the Bureau of Economic Analysis (BEA). Similarly, Commerce Department data on matters such as trade, gross domestic product and housing construction cannot be published. This data is important to businesses, as it allows them to plan for the future and make critical decisions and projections, including those involving procurement budgets.
Shutdowns can often affect the transportation of goods as well. While cargo clearance didn’t experience delays (due to Customs and Border Protection (CBP) and TSA agents remaining on duty), priority for military orders impacted delivery schedules. Furthermore, orders for government goods and services were halted, impacting adjacent commercial supply chains, and manufacturing companies that support both military and commercial clients reduced their activity or shut down completely.
According to Lyneir Richardson, executive director of the Center for Urban Entrepreneurship and Economic Development at Rutgers University, government shutdowns typically hinder cash flow and thus business capacity, and not just for small businesses that largely depend on public contracts. “When those companies feel the squeeze,” Richardson states, “they will often delay capital expenditures and invoice payments to other businesses they work with, creating a ripple effect in the wider economy.”
The Shutdown Fight Isn't Over
While the extent of the impact of the 2018-2019 stoppage has yet to be fully realized, a shutdown of this duration and so close to the holidays has the potential to be damaging to businesses nationwide. Furloughed employees are historically less willing to spend money, and with the stock market in the middle of its longest decline since 2008, this government shutdown is destined to be risky. In fact, a new Capital Economics report went so far as to label this shutdown the biggest risk to the national economy in 2019, even more than tensions with China and Federal Reserve policymaking.
Thankfully, the shutdown has ended, but we’re not in the clear yet. President Trump alluded to the possibility of another shutdown on February 15, 2019, if Congress and the Trump Administration cannot reach an agreement on border security funding. Businesses and procurement professionals may be wondering how they can prepare for this scenario. Mike Trabold, director of compliance at Paychex, says staying informed is probably the most important thing. "The advice we give people is that it's not a savory situation, but keep informed and do something with the opportunity to expand offerings a bit more – cut back on expenses and reach out to some of your creditors, and talk with them to find out if there are ways to extend payment terms."
The ability to adapt in tough economic environments is a muscle all businesses should work on strengthening. As we approach February 15, it may be beneficial to consider multiple outcomes and strategies. Business leaders also have the option of reaching out to their representatives for more information or to voice their concern about another shutdown.
By: Mara Michael, ProcurementIQ
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