IPO approvals, food stamp distributions and market data releases are among the many impacted areas, notes Washington Policy Analyst Ed Mills.
The longest shutdown in U.S. history is shifting focus away from the political dynamics of the border security debate and increasingly drawing attention to its economic impact, which has halted product approvals and small business loans as well as clouded market data. An extended shutdown not only threatens federal workers’ pay and government functions, but has the potential to disrupt economic activity even once concluded due to a backlog in agency operations.
Negotiations between President Trump and Congressional Democrats may be influenced as the impact on business decisions and economic sentiment becomes more understood, given the president has historically been sensitive to factors that dampen a positive national economic message.
The Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC) and Treasury Department are all affected with partial or complete shutdowns of operations – limiting regulatory filings and approvals. The SEC is functioning only in an emergency and law enforcement capacity, which has halted IPO approvals and regulatory decisions. The expected launch of a bitcoin futures market developed by Intercontinental Exchange Group (ICE) is delayed indefinitely pending the CFTC’s reopening. The lapse in Treasury’s funding has threatened to delay tax refunds during this year’s tax season and delayed IRS income verification for home loans, although plans are now being put in place by the administration to continue these functions without disruption.
If refunds are ultimately delayed, sectors and purchases that seasonally benefit from tax refund spending could see a hit. A delay in the timing of income tax refunds in January and February of 2017 contributed to disappointing sales results for sectors such as automotive aftermarket retailers in 1Q17. In addition, the auto parts retailers did not see a meaningful pickup in sales in March 2017 when tax refunds ultimately arrived – suggesting that a delay in a maintenance purchase could lead to even longer effects. Regardless, this tax season may see refunds affected due to the new tax law that could see consumers receiving less from the IRS compared to the old tax code.
The Federal Housing Administration’s loan servicing remains operational, except for reverse mortgage and Title I improvement and renovation loans, which will not be processed until the shutdown concludes. The Small Business Administration (SBA) has halted 7(a) working capital and 504 commercial property loans for small businesses.
The Federal Aviation Administration (FAA), Federal Communications Commission (FCC) and Department of Agriculture’s shuttered operations are challenging aviation, telecom and retail business operations. Without FAA staff approving the introduction of new aircraft types, airlines are delaying plans to add to their fleets and expand servicing. Delta has quantified the impact of the shutdown to be $25 million per month (about 0.1% of January passenger revenue), attributable to a lack of government employee travel for work/leisure. This has come during what is seasonally a weak travel period, which sets up a larger impact related to stress on the system and overall passenger demand should the shutdown continue to drag on.
The FCC is not able to approve new telecom product launches, delaying a variety of products’ time to market. There are reports of advertisers who had plans to make significant airtime marketing purchases during the Super Bowl in early February doubting the viability given the lack of FCC approvals for their products. The FCC shutdown will also impact company merger reviews that require license transfers, with potential impact on Sprint/T-Mobile.
Finally, the Department of Agriculture administers food stamp distributions and has announced that it has funding only through February. Changes in the Supplemental Nutrition Assistance Program (SNAP) can be a leading indicator of the spending habits for low income families or families in need. Following the partial government shutdown, the ~39 million Americans receiving SNAP will have their February benefits deposited between January 16 and January 20, a couple weeks earlier than usual. This could lead to a tailwind for the value retailers’ fourth quarter 2018 same-store sales while hindering the first quarter of 2019. If March’s SNAP benefits do get delayed or even canceled, this would be a negative read-through for value retailers.
The Department of Commerce and CFTC provide important market data releases that have stopped during the shutdown. Commerce’s Bureau of Economic Analysis will not be releasing economic indicators including GDP, inflation, housing starts, home sales, and personal income and spending data. The CFTC’s Commitments of Traders (COT) report on futures and options positions data has also ceased pending the shutdown’s conclusion.
Legislative and regulatory agendas are subject to change at the discretion of leadership or as dictated by events.