The partial US government shutdown has taken US$24 billion out of the economy and will cut growth in the fourth quarter significantly, ratings firm Standard & Poor’s (S&P) said on Wednesday.
Moreover, S&P warned of more possible damage if the political battle over the budget and debt ceiling resumes in January, further scaring consumers, especially government workers laid off without pay during the shutdown.
As the US Congress struck a deal on Wednesday to resolve the stalemate over a new budget and raising the debt ceiling, S&P said the impact of the two-week-old shutdown likely will take 0.6 percent off fourth-quarter growth.
S&P now expects the economy to grow at a tepid annual rate of roughly 2 percent this quarter. Last month, it had predicted a 3 percent growth rate.
“The US economy dodged a bullet today,’’ an IHS Global Insight economist, Paul Edelstein, said. “But the reprieve will be short. ... The stage is set for another showdown in January.”
IHS lowered its forecast for growth in the October to December quarter to a 1.6 percent annual rate from a 2.2 percent rate.
The fall in growth is mostly due to the furlough of hundreds of thousands of civil servants, as well as impacted government contractors, because the Congress could not agree a budget for the 2014 fiscal year that began on Oct. 1.
A report from the Federal Reserve on Wednesday offered fresh evidence of the economic impact of the shutdown and debt limit fight.
The Fed’s report on economic conditions in its 12 banking districts found that employers in several districts were reluctant to hire because of uncertainty surrounding budget policies and the new healthcare law.
Manufacturing growth slowed in the New York region this month, builders were less confident in the housing recovery and growth slowed in four Fed districts.
All the reports cited the federal shutdown and impasse over the debt limit as reasons for the declines.
BMO Capital Markets senior economist Jennifer Lee said that the Fed’s survey, known as the beige book, showed that there had been only limited damage to the economy at least through the first week of the shutdown.
“Hopefully... the damage and the hurt have been generally contained,” she said.
Yet S&P pointed out that the deal reached tentatively on Wednesday in Congress would only fund the government through Jan. 15, and raise the debt ceiling to Feb. 7.
That portends potentially a fresh political crisis over both, and could frighten consumers from spending during the first quarter as well.
“The short turnaround for politicians to negotiate some sort of lasting deal will likely weigh on consumer confidence, especially among government workers that were furloughed,” S&P said.
“If people are afraid that the government policy brinkmanship will resurface again, and with it the risk of another shutdown or worse, they’ll remain afraid to open up their checkbooks. That points to another Humbug holiday season,” it added.
Some analysts think the Fed is now unlikely to slow its monthly bond purchases until well into next year. The Fed has been buying US$85 billion a month in Treasury and mortgage bonds to try to keep long-term interest rates low.
The full economic effect of the budget standoff could take a month or more to assess because the release of so much economic data has been delayed. And Drew Matus, an economist at UBS, says that much of the economic data will be distorted by the effect of the shutdown, making it harder to discern underlying trends.
Weekly applications for unemployment benefits, for example, spiked last week, partly because of workers who were temporarily laid off by government contractors and other affected companies. Those figures are collected by the states.
“We’re in the dark,’’ Citigroup head US economist Robert DiClemente said. “It’s going to be a while until we have good answers to all these questions.’’
NOT ALL GOOD: Analysts warned that other data for last month might be less rosy due to the virus and analysts expect the PMI to contract again next month Chinese factory activity saw surprise growth last month as businesses went back to work following a lengthy shutdown, but analysts said that the economy faces a challenging recovery as external demand has been devastated by the COVID-19 pandemic, while the World Bank said that growth could screech to a halt. China is slowly returning to life after months of tough restrictions aimed at containing the virus, which put millions of people into virtual house arrest and brought economic activity to a near standstill. The strict measures saw a closely watched gauge of manufacturing plunge to its lowest level on record in February,
The output of the global smartphone industry this year is to contract by 7.8 percent on an annual basis as the COVID-19 pandemic ushers in a global recession, Taipei-based market researcher TrendForce Corp (集邦科技) said in a report on Monday. The global production of smartphones is expected to fall to 1.29 billion units, as the pandemic dampens demand for consumer electronics, leading to a decline in shipments across Europe and North America, TrendForce said. With consumers delaying smartphone purchases and thereby lengthening the device replacement cycle, overall prices would suffer a setback that is expected to negatively affect the profitability of smartphone
ELECTRONICS Lite-On delays sale of unit Lite-On Technology Corp (光寶科技) yesterday said it would postpone the sale of its solid-state drives (SSD) business to Kioxia Holdings Corp, formerly known as Toshiba Memory Holdings Corp, due to disruptions amid the COVID-19 pandemic. Last year, the Taiwan-based electronics components supplier struck the deal with the Japanese firm, agreeing to sell the unit for US$165 million. Citing unfinished integration work due to the pandemic, Lite-On has deferred today’s closing date until further notice, adding that the delay would not have a negative effect on the unit’s operations. AUTO PARTS Hiroca approves dividend Automotive interior parts supplier Hiroca
ALL ABOUT STRATEGY: The company is optimistic, saying that its gross margin should increase year-on-year, but it is scaling back on its plans to expand capacity Quang Viet Enterprise Co (QVE, 廣越), which makes down jackets and garments for sportswear and outdoor brands including Adidas AG, yesterday said that revenue might drop 5 to 10 percent annually this year as some customers trimmed orders in response to the COVID-19 pandemic. That would mark its first revenue decline since 2016. Quang Viet posted record-high revenue of NT$16.26 billion (US$537.45 million) last year, up 22 percent from 2018. Down jackets made up 40 percent of it revenue last year. North Face Inc and Patagonia Inc are this year likely to reduce orders by 20 to 30 percent from a