The economy dodged a bullet this fall — the federal government shutdown didn't bring business to a halt. However, business did get grazed. As always, there will be an impact in the electronics supply chain.
The Office of Management and Budget reported in October that the shutdown was expected to reduce fourth-quarter gross domestic product growth by 0.2-0.6 percentage points. “The Council of Economic Advisers estimates that the combination of the government shut-down and debt limit brinksmanship may have resulted in 120,000 fewer private-sector jobs created during the first two weeks of October,” the OMB said.
Also in October, a Forrester Research report (subscription required) said that the federal government sequestration, the government shutdown, and the brinksmanship on the debt ceiling have “kept the US economy and the US tech market stuck in second gear.” The firm reduced its 2013 growth forecast for information and communications technology purchases from 5.7% to 3.9%.
Andrew Bartels, an analyst at Forrester and one of the report's authors, wrote in a blog post that the reduced federal spending impacted CIO purchases of electronics goods, which, obviously, sends ripples to the supply chain. Tech spending is easy to defer. “Servers and PCs have been especially hard hit as alternatives like infrastructure-as-a-service (instead of buying servers) and tablets (as replacements for laptops) accentuated CIO caution,” he wrote. “However, there is evidence that even corporate purchases of tablets have slowed.”
Here are some other ways the shutdown has affected the technology industry.
- Delayed review of patent applications: Though the US Patent and Trade Office kept two of its offices open, it reduced staff during the shutdown.
- Halted processing of H1-B visas: The State Department did not review applications for these visas during the government shutdown.
- Delayed IPOs: The Securities and Exchange Commission stopped reviewing new applications for IPOs and slowed the processing of previously filed applications.
- Furloughed government contractors: Tech companies with government contracts felt at least some impact.
- Federal Communications Commission delays: The FCC couldn’t approve products for three weeks, potentially delaying shipments of consumer products. And it was forced to delay an auction of H-Block spectrum, which could provide more airwaves for smartphones and other communications systems.
- Potentially delayed imports and exports of electronics and computer products: Government officials weren't at the job to review permits.
What's more, a recent Wall Street Journal article (subscription required) says that some computer and software companies believe that slowing sales in China are linked to the National Security Agency spying scandal. Cisco Systems reported that orders from China in the latest quarter dropped 18% from a year earlier. In an earnings call, Cisco's president of development and sales said that tension over the scandal has been causing potential buyers to pause.
For 2014, Forrester Research predicts that sales of IT goods and services will rise 5.3%, but that's assuming we won't have another shutdown and/or refuse to raise the debt ceiling. That assumption may be too optimistic. The agreement struck by Congress and President Obama this fall funds the government only until Jan. 15, 2014, and it raises the debt ceiling until Feb. 7, 2014. If factions dig in their heels and fail to reach agreement, “then our 2014 forecast for the U.S. tech market will once again have to be ratcheted down,” Bartels wrote.
What do you think about the government shutdown and its impact on the supply chain? Share your thoughts in the comments field below.