The March 1 deadline for “sequester” – arbitrary federal budget cuts – is a week away and political rhetoric is indicating little compromise in sight. You’re likely digging into possible ripple effects on the industries and sectors you cover, as well as the ramifications for consumer spending, employment and the fragile housing market recovery.
Cuts to defense spending are getting the lion’s share of attention, and industry constituents from military families’ groups to giant aerospace companies are reacting near-daily to the impending cuts; keep an eye on Defense News, a trade journal, for story nuggets. Organizations like the National Association of Government Contractors and the National Defense Industrial Association can point you to local chapters and/or members. Your state’s department of commerce likely also can identify defense-related businesses. Don’t forget about USASpending.gov; search by location to find government contractors in your area (not limited to defense contractors) you can discuss the budget cuts with.
Also, the Pentagon has indicated that some 800,000 civilian defense workers (worldwide) could lose up to 22 days of pay — that’s a month’s wages this year, which clearly would affect spending and debt service in families hit by the involuntary furloughs.
Don’t forget about the investment angle, too. (Who benefits?) Marketwatch reports on the pros and cons of defense stocks these days. And Fox Business reports that the budget cuts may stimulate mergers and acquisitions among defense contractors; you might talk with industry analysts about which players in your region are vulnerable enough that a big budget cut would put them on the chopping block — or conversely, which companies may be in the market to expand by absorbing smaller peers. Either way, the “economies of scale” that usually result from corporate marriages tend to include permanent job cuts, facility closures and other fallout that could last long beyond the shakeup to the federal budget.
Meanwhile, non-defense spending also in jeopardy, and late news has examples of how it will affect everyday-life situations; TSA cuts, for example, are forecast to lead to flight delays and long airport lines. That’s a downer heading into the spring break/family mid-term vacation/Easter travel season; you can check in with tourism-related industries and transportation companies about the likely scenario and any prep they are doing to ameliorate matters. Are airlines reviewing schedules? Are airport managers beefing up non-federal staffing plans to deal with queues of agitated travelers?
Food safety is another everyday concern that sequester will affect; livestock producers are worried about delays in inspection — the USDA has predicted furloughs that could bring meat and poultry processing to a halt, according to Food Safety News. The National Cattlemans Beef Association says that could lead to $10 billion in lost production, $400 million in lost wages, higher prices for consumers and other dire consequences. This hits so close to home and involves so many industries, from retail and restaurant to food processing and transportation, that I would be inclined to focus on how sequestration would affect the local food chain. What substitutes are available (a run on canned ham for Easter, and powdered eggs?) and what changes are food service companies and retailers making to menus, inventory and planning in anticipation of sequester-driven shortages or price hikes? What about franchises like McDonald’s? Do they have reserves of frozen beef patties and McNuggets, or could we see burger-less drive-thrus in the month of March?
Hospitals will suffer, as well; here’s an NPR post about how the sequester could affect health care, particularly through Medicare cuts. It’s not clear how the cuts would translate into changes to patient care (or will they just adversely affect providers’ bottom line?) but that’s a question you’ll want to pose to local medical centers and clinics.
Interestingly, while airport and border-crossing problems are forecast, the trucking industry reports that many of its safety and regulatory programs are exempt from sequestration because they are financed through the Highway Trust Fund. That’s good news for the nation’s carriers but it stands to reason that the industry still might face hurdles if its clients curtail business due to spending cuts, or if shipping is slowed by slower inspection and customs delays. Check in with freight operations about what they expect after March 1.
Here are some infographics compiled by The Washington Post’s The Fix blog. They aim to illustrate possible effects of the budget cuts — note the projected defense-related job losses in states like Florida, Texas and California. Note the sources; the Congressional Budget Office Center for Security Policy and the Office of Management and Budget (OMB). The OMB, a White House unit, offers a number of fact sheets about the sequester; this one, “How the sequester would would impact middle class families, jobs and economic security,” lists some potential effects that have not been as widely publicized as defense cuts yet still offer a number of possibilities for financial journalists. They include cuts to research spending, which may affect jobs and activities at your area’s medical centers and biotech corridors, and cuts to mental health programs and other social services that will negatively impact employment and otherwise ripple throughout community economies.
Cuts to rental assistance, for example, is a possibility you can explore with local landlords whose tenants include low-income people. Cuts to the Women, Infants and Children (WIC) nutrition program, which allows for the purchase of specific foodstuffs, may cost grocers and bodegas the trade they get from people on this program, and ripple back to suppliers of approved items like cheese, milk, eggs and peanut butter. (I’m not suggesting the loss of WIC-related shopping will devastate grocers, but retailers already are feeling pinched as shoppers react to higher payroll taxes and higher gas prices; curbed social service programs are one more straw on the camel’s back.)
Here also is an OMB explainer on the size of the budget cuts and why taking them in a compressed time period will magnify the effects; this information may help you when discussing numbers with agencies and businesses: The Office of Management and Budget (OMB) now calculates that sequestration will require an annual reduction of roughly 5 percent for nondefense programs and roughly 8 percent for defense programs. However, given that these cuts must be achieved over only seven months instead of 12, the effective percentage reductions will be approximately 9 percent for nondefense programs and 13 percent for defense programs.