The Good News and Bad News about the Government Shutdown

by Tim Larkins, Senior Manager, Market Intelligence

The bad news:  The shutdown cut about 0.6% off forecasted 4th quarter GDP growth. An estimated 100,000 jobs were lost across the country (it is unclear how many of those will be recovered), and the shutdown pushed consumer confidence to its lowest point in 8 months.

The good news:  Government spending will continue. The main hit was felt by services contractors, because they can never recoup lost billable hours from those 3 weeks. However, the IT products that agencies needed a month ago will still be needed in a month, so they’ll still be purchased. Albeit forecasts are off… but at the end of the day IT product companies will still realize the revenue.

The most recent legislation suspended the debt ceiling until February 7, and the Continuing Resolution (CR) funds government discretionary budgets at an annualized level of $986 billion until January 15. There is no reason to believe that a budget deal will be reached, so we can expect further last minute CRs to occur throughout the year. Hopefully we’ll see an omnibus that will at least provide appropriations for certain agencies – so that those agencies will no longer have to reference FY12 or FY13 budget numbers and agencies can begin new programs.

But regardless of whether we see more CRs or an omnibus, you can expect agencies to remain hesitant to make large purchases (as they were last year). The $986 billion is $19 billion above the post sequestration Budget Control Act (BCA) caps – so unless Congress amends the BCA, we’ll be going through another round of sequestration again in FY14. I expect we’ll see a flurry of RFP activity in March/April again as agencies will want to hold on to funds and not obligate them until August/September (they know the contracting process takes 5-6 months).