Government Shutdown Bad for Business

Oct 1, 2013 8:08am

Morning Money Memo:

If the government shutdown lasts for more than a few days, many businesses could be forced to lay off employees. Millions of firms do business every day with the federal government. Many still don’t know which contracts will be honored during the shutdown. About 800,000 federal workers are already on furlough and many more are being asked to work without pay for now. Their spending at stores and restaurants will be reduced. During the most recent government shutdown in 1996, the economy was in much stronger shape than it is today. Economists have predicted that a two-week shutdown could reduce growth by to 0.4 percent for the fourth quarter.

The outlook is overcast for Wall Street as it heads into the fourth quarter. Stocks have been down seven out of the past eight trading days. Futures are up this morning but the Dow Jones index fell 128 points Monday. The S&P 500 was down 10. It was mostly because of the political deadlock in Washington over funding the government. Veteran stock picker Sam Stovall of Standard & Poor’s says “investors don’t like uncertainty,” and the D.C. budget battles have brought plenty of that. “Investors have come to learn that even Washington can teach Hollywood something about drama,” Stovall says. Growth has been fragile. “I think investors believe that we just don’t to have additional headwinds to contend with,” he adds.

Another reason for worry is that many stocks are at or close to all-time highs and might not have much more room for improvement. The Dow Jones index is up more than 15 percent this year, while the high-technology Nasdaq has risen 24 percent.

Energy continues to be a bright spot for the economy. Gas prices are falling. The U.S. Energy Department says the average price for regular unleaded dropped 7 cents a gallon in the past week to $3.43.

Amazon says it’s hiring about 70,000 full-time workers for the holidays. The world’s largest online retailers say that’s 40 percent more hires than last year. The company has increased the number of regional order fulfillment centers. Amazon says it plans to convert “thousands” of the temporary jobs into full-time roles after the holiday season. Other big retailers have been announcing their holiday hiring plans

IKEA says it will begin selling solar panels at its stores in Britain. The U.S. market could be next. IKEA is tapping into a growing market but this could be a difficult challenge for many consumers. Putting solar panels on the roof is a much more difficult and potentially dangerous task than installing TVs, shelves or furniture. IKEA plans to sell packages that include solar panel installation and maintenance. Along with Walmart, IKEA has made a big push to solar power for its stores and plans to use renewable power for all of its energy needs within seven years.

Richard Davies Business Correspondent ABC News Radio abcnews.com Twitter: daviesnow 212-456-5100

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