Many CEOs of major public companies, already worried that a recession will arrive in 2019, say the record U.S. federal government shutdown is casting a cloud over their outlook for earnings and economic growth. According to a survey by RBC Capital Markets, companies including JPMorgan Chase & Co. (JPM), Delta Air Lines Inc. (DAL), IHS Markit Ltd. (INFO) and PNC Financial Services Group Inc. (PNC), indicate that their outlook has been affected as the partial shutdown entered its 34th day on Thursday, per Business Insider.
Add to that Boeing Co. (BA), one of America's most influential multinationals, which issued a statement on Wednesday warning that a prolonged shutdown would hurt not only the company but the entire aerospace industry. "We urge the Administration and Congress to reach a solution to this funding impasse quickly to fully reopen the government and preserve U.S. economic growth," Boeing told CNBC. In fact, White House Council of Economic Advisers Chairman Kevin Hassett told CNN yesterday that the economy could see zero growth in the first quarter if the shutdown goes on too long.
What It Means For Investors
The full impact of the shutdown, which started in late December, won't be clear until companies report first quarter earnings this spring. But RBC Capital Markets equity strategist Lori Calvasina and her team are growing increasingly concerned about the impact of the shutdown on the market's health. While many companies remain unworried, Calvasina's team also talked to a number of high-profile companies that are concerned.
Here's a look at several of them, per Business Insider.
Delta says the shutdown is pressuring revenue by slashing about $25 million per month in lower government travel. The bigger impact is the giant ripple effect on Delta's operations, sharply boosting costs while delaying deliveries and approvals of new jets. “With nonessential work at the FAA shutdown, our Airbus 220 start date is likely to be pushed back due to delays in the certification process. This is also hampering our ability to put 7 other new aircraft deliveries into service, but it's our customers who are seeing the biggest impact with longer lines at airport security,” said the Atlanta-based airline.
IHS Markit says the shutdown threatens to hurt its product design business, which provides service to the Army and Navy. The business services giant notes that the contracting process is a continuing resolution process, indicating that “the funding does need to come in, but there's a continuation of services and ability to recover the full revenue, assuming that, ultimately, we do get funded.”
As JPMorgan puts it, "capEx is sluggish on fears around global growth. Government shutdown and trade are not particularly helpful. Uncertainty is not good for anyone. So there's no doubt that as things continue, if there's a level of anxiety and uncertainty, it's just not constructive for confidence, and confidence begets stronger or less strong markets.” JPMorgan suffered last quarter on an earnings miss, already setting the firm up for a tough 2019.
PNC Financial isn’t too worried about the government shutdown – at least for now. However, PNC says all of this could change if that government shutdown persists for a longer period of time, or if China negotiations fall through. In the latter case, which the bank doubts will materialize, the impact currently being felt by large multinational companies could start to trickle down to the broader economy.
To be sure, not every company shares these concerns. Bank of America Corp. (BAC), for one, sees continued long-term growth in the U.S. economy despite a predicted slowdown this year. In short, it views positive indicators in the U.S. economy as outweighing short-term headwinds. Ultimately, if the shutdown ends soon, the economic and earnings impact should remain small, while stocks are likely to soar as they have after past shutdowns. But this shutdown already is at record length - so anything could happen.