Foodservice Equipment Reports

What Impact Will The Debt-Ceiling Debacle Have On E&S?

As we write this, it looks increasingly possible that Congress will fail to pass legislation to increase the U.S. federal debt ceiling or restart the federal government, which has been in a partial shutdown since Oct. 1.

We said in our annual forecast back in August that we would be confidently predicting faster equipment and supplies market growth in 2014, so long as the politicians in Washington, D.C., didn’t goof things up. Well, they are very clearly goofing things up. Even if a last minute deal gets done this week, the stalemate has already undermined yet again the confidence that the rest of the world places in the U.S. economy and currency. The long-term effects could be very grim indeed.

But what about the short-term? Consumer and foodservice operator confidence already was tanking in August, as it became increasingly apparent a government shutdown was possible. We’ll get the University of Michigan preliminary Consumer Sentiment numbers at the end of this week; they won’t be pretty. They fell to 77.5 in the final August reading from 82.1 in August as consumers began to realize the shutdown might happen.

The brinkmanship over the debt ceiling already has driven short- and long-term interest rates higher. If we in fact go past the deadline this Thursday, Oct. 17, expect them to soar.

The government shutdown has had a negative impact on the general economy and foodservice sales in a variety of places and ways, from reduced travel to national parks, to shuttered canteens for federal employees, to simple caution on the part of consumer eating-out behavior. The economists polled by Blue Chip Economic Indicators estimate that each week of the shutdown will trim 0.1% from GDP growth this year with stronger declines if the shutdown wears on. Because the current forecast for real GDP growth is a mere 1.6% this year, this economy can’t afford to lose much growth and remain positive.

Chain restaurant operators are likely to become much more cautious about expansion or renovation plans, just as they are finalizing their budgets for 2014. Even in the short-term, operators are likely to hesitate before making capital purchases until they get some assurance things have stabilized. And this is all happening just before the critical holiday shopping and spending season.

If we had to guess, we’d say the shutdown and debt ceiling fight already have cost a half point of E&S sales growth this year. Because our current forecast is for nominal growth of 3.3%, that will drop market growth below 3%. And this is in spite of the strong second quarter numbers from MAFSI and the public companies.

As for next year, all bets are off until we see how this debacle plays out. One thing is clear: It’s no way to run a government.

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