U.S. Shutdown Cost $1.6 Billion Last Week

Each day of closures causes $160 million in lost economic output, IHS estimates.

The partial U.S. government shutdown has closed the gates to Alex Thevenin’s place of business: the Grand Canyon.

Her family-owned Arizona Raft Adventures in Flagstaff, Arizona, lost $80,000 last week in income from a group excursion down the Colorado River that didn’t happen. Thevenin’s and five other small, whitewater businesses will lose almost $1 million because of canceled trips in the final few weeks of the 2013 rafting season, said John Dillon, executive director of the Grand Canyon River Outfitters Association in Flagstaff.

“We had a great year until Sept. 30,” Dillon said.

The shuttering of large parts of the federal government on Oct. 1 amid a fight over funding President Barack Obama’s health-care law is hurting businesses big and small. Some, such as Thevenin’s, have already taken a hit to their bottom line. Others will suffer from slowed economic activity -- stocks declined yesterday, with the Standard & Poor’s 500 Index at almost a one-month low, and a Gallup poll released Oct. 4 showed consumer confidence had dropped to its lowest point since December 2011.

The shutdown cost $1.6 billion last week in lost economic output, according to IHS Inc., a Lexington, Massachusetts-based global market-research firm. As the showdown enters its eighth day, the office closures are now draining an average of $160 million each workday from the $15.7 trillion economy.

Two more days of the Washington-made calamity would put the shutdown’s financial harm on par with a natural disaster last month. September’s heavy rains, flash floods and mudslides across 17 Colorado counties caused at least $2 billion in economic damages, according to Equecat Inc., an Oakland, California-based catastrophe-risk modeler. Based on the IHS estimate, the shutdown costs will surpass $2 billion on Oct. 9.

Congress’s failure to approve a federal budget or a stopgap spending measure sidelined an estimated 800,000 federal employees last week. As many as 350,000 of those employees returned to work yesterday, with regular pay schedules. Active-duty military employees also are collecting checks.

Yet the economic impact of the shutdown goes beyond the federal workforce.

The National Association of Government Contractors found in an Oct. 1 survey of 925 members that 29 percent planned to delay hiring because of the stalemate and 58 percent said it will have a negative effect on business.

 

Shared Losses

“The behavior of contractors is going to quickly be felt in the spending chain and spread out through the economy broadly,” said Joseph Minarik, research director at the Committee for Economic Development in Washington and a former chief economist of the U.S. Office of Management and Budget. “Also, you will see heavily concentrated local effects. Coffee shops, dry cleaners -- dialing back near government centers.”

In Greenbelt, Maryland, across the street from the closed Goddard Space Flight Center, John and Carol Mattimore figure they can live off savings for three months if out-of-work NASA employees begin removing their children from the couple’s home daycare. About 97 percent of NASA’s 18,000 employees are idled.

“We don’t want to lose our parents, and we don’t want to lose our business,” John Mattimore said in an interview in his living room, where a sign at the front door read, “Shhh! Babies are sleeping. Please knock softly.”

The parents of their eight charges are “extremely stressed” emotionally and financially, said Carol Mattimore. “I’m worried they’re not going to afford daycare if this keeps up. We thought about giving them free tuition for a week, but I’m not sure how much that helps them, and we have bills to pay ourselves.”

Some defense contractors that planned to furlough employees won a reprieve when the Defense Department returned most of its civilian workforce to the job. That meant some contractors could continue doing federal employee-supervised work and gain access to more government work sites.

Yet, the biggest contractor, Lockheed Martin Corp., based in Bethesda, Maryland, yesterday sent home about 2,400 employees because either a civilian government worksite is closed or it received a stop-work order from an agency.

“The Department of Defense’s decision will not eliminate the impact of the government shutdown on the company’s employees and the business,” Lockheed said in its statement.

Non-defense contractors also are under pressure.

 

Nuclear Reservation

The Department of Energy directed contractor Savannah River Remediation to furlough 1,440 of its 1,804 employees for the duration of the shutdown, said James Giusti, a spokesman for DOE’s Savannah River Site, a nuclear reservation that covers 310 square miles. He said employees who maintain the liquid waste facilities in a non-operating mode remain at work.

For other businesses tied to the government, uncertainty is slowing the usual flow of commerce.

Brian Glaister, chief executive officer of Cadence Biomedical, a medical-device firm based in Seattle, said last week was “easily the most stressful week of my life.”

With the government closed, the U.S. Army didn’t send research and development grant checks that his six-year-old company depends on to pay employees and vendors.

“If a small business owner can’t count on the U.S. Army to pay bills, it is hard to figure out who we can count on,” Glaister said. “With the shutdown, it’s been complete chaos.”

He delayed payroll for his six-person company because federal workers weren’t at their desks to process payments owed to his firm. Yesterday, the stress eased as some of the federal employees were back, he said.

Companies in and around Washington, one of the country’s densest areas of federal employment, are on edge.

“Business clearly is down,” said Geoffrey Pohanka, president of Pohanka Automotive Group, which has 15 dealerships in Maryland and Virginia. “This really started in September with the war of words going back and forth and the threats, you could feel there was a lot of concern. We’re dominated by the government or businesses that associate with the government and civilian government workers. This can’t help but cause some level of downturn.”

Even some 2,300 miles away from the nation’s capital in Tusayan, Arizona, the reach of the federal government is plain.

The Grand Canyon is the 558-person town’s lifeblood. The Best Western Premier Grand Canyon Squire Inn, the town’s largest hotel, normally would be almost filled, said Greg Bryan, 65, its manager and Tusayan’s mayor.

“We are having significant cancellations every day. With the park not being open, people are changing their plans,” he said. “It’s a very big hit to take.”

 

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