The government shutdown hasn’t shaken the confidence of Miles Whitlock in the American consumer.
For now, people will still go out and spend money, he said, and banks will lend money, too.
But he doesn’t think their patience is infinite. The longer the shutdown lasts, the more likely the economy will suffer.
If the government isn’t back up and running in a couple of weeks, Whitlock said, “People will start to take a wait and see attitude and say, ‘Maybe Billy doesn’t need those sneakers.”
Economists feel the same way.
“This is a slow burn,” said Rajeev Dhawan, director of the Economic Forecasting Center at Georgia State University. “It’s not just the consumption side. It is the investment side that leads to job growth. And if investment suffers, the job front will suffer.”
Already many of the 77,000 Georgians who work for the federal government are feeling the pinch. But the government's shuttering is also nibbling at growth in a number of other unspectacular ways. Expansion and business investment depend on lending – some of which is already being chilled by the shutdown. Mortgage approvals and passport issuance have been delayed. Applications for new Social Security and Veterans benefits are not being handled.
Georgia’s economy has been growing at a modest 2.3 percent pace, and a shutdown of about a month will cut growth down to about 2.1 percent, said Jeff Humphreys, director of the Selig Center, University of Georgia.
That means a little less hiring at a time when job growth is already modest, he said. “There are bad things, but they are not catastrophic. We don’t go from recovery to recession.”
It could be worse, he said. “It all hinges on the length of the shutdown.”
Display Fixture Warehouse, the 21-year-old company that Whitlock owns, imports fixtures for restaurants and retail stores. The company also has an operation in Los Angeles and is considering a third location.
“I’m not going to walk around with blinders on. I know that banks are going to have to be more cautious,” Whitlock said. “The shutdown hasn’t affected my confidence – not as of yet. But I don’t have a crystal ball.”
The greater economic danger, economists agree, is that Congress later this month does not consent to an increase in the debt ceiling.
“Right now, I have the chances of recession at 30 percent,” Humphreys said. “But if this doesn’t get resolved, that could be the inflection point for the economy.”
One agency that had been making economic contribution was the Small Business Administration, which guarantees loans that banks make to small businesses. The shutdown puts its work on hold and, when it re-opens, there will be a backlog, said Paula Englis, professor of management at Berry College.
Shutting the SBA undermines a small but important component of growth, she said. “Entrepreneurs and small businesses are the backbone of the economy. This will slow things down again and make them even more cautious.”
The SBA has two loan programs active in Georgia, said Peter Rassel, business consultant at the Georgia State University Small Business Development Center. Together, they loaned $989 billion in Georgia.
Hiring could slow because of the requirement that new hires in Georgia be checked through the federal government’s E-Verify database, a process meant to weed out undocumented workers – but that system is unavailable during the shutdown.
Bob Griggs, the CEO of Atlanta-based Verify I-9, which does verifications for companies, said that shouldn’t prevent hiring.
The vetting of workers actually comes after hiring, he said. “There is a lot of confusion right now regarding E-Verify and the shutdown, but it’s all unjustified. Any confusion is the result of ignorance of how the system works.”
Employers are given a grace period while E-Verify is offline, he said.
Kyle Jackson, director of the National Federation of Independent Business, said the rules may permit hiring, but many employers may still hold back.
“Most employers I speak to are very risk-averse and may still opt to wait until this whole situation is sorted out before moving forward in any hiring process.”
The closure affects dozens of jobs.
For example, some small companies that rent kayaks and canoes on the Chattahoochee River find themselves temporarily out of business: The national park along the river, where they launch, are closed. Moreover, the government officially closed a large swath of the river.
On a larger scale, many defense manufacturers cannot run factories without Defense Department inspectors who are currently furloughed. United Technologies Corp., the make of Black Hawk helicopters, has said it will furlough 5,000 workers.
In Georgia, the highest profile military contractor, Lockheed Martin, declined to detail the shutdown’s effects.
Lockheed Martin said Friday it would furlough 3,000 workers because of the shutdown – and it might be more if the shutdown goes on. The company was not specific about where, but much of the defense work is done in Marietta.
Georgia has 29,445 jobs in aerospace and defense with average pay of $73,000, according to Francis ‘Chip’ Sheller, vice president of the Aerospace Industries Association.
The association, which represents about 2,000 companies, sent a letter to Defense Secretary Chuck Hagel on Friday warning of furloughs and possibly permanent damage to the industry if the shutdown prevents them from continuing work.
More economic friction comes in what has been one of metro Atlanta’s most crucial sectors: real estate.
While rising residential home sales have been a source of hope these past few months, the shutdown will delay applications for mortgages. With government offices closed, lenders cannot verify a borrower’s Social Security number or income and tax information.
One of the most obvious – and painful – ways that the shutdown hurts is in lost wages.
Paychecks to federal workers in Georgia during the first quarter of this year added up to more than $1.1 billion, according to the state Department of Labor.
Those workers average an annual salary of $70,544.
The furlough means those households – and the state – loses that income, at least temporarily.
“It’s about five months of job growth that gets wiped out all at once,” said Harry Holzer, professor of public policy at Georgetown University. “Then there are the spillovers of spending that doesn’t get done.”
The economic hope is that the effect goes in reverse — if the furloughs don’t last long and if those workers receive backpay.
The impact can be softened a bit right away for workers who file for unemployment. However, the maximum weekly benefit is $330 – well short of the lost wage.
Ultimately, the economics depend on how long the shutdown lingers, said Jeffrey Korzenik, chief investment strategist for Fifth Third Bank. “And it’s too early to tell.”
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