October 01, 2013

Tech Sector May See Limited Impact from US Government Shutdown


Many parts of the federal government have been temporarily shut down starting today – because of partisan bickering between the U.S. Congress and the President. Will there be any significant impact on the tech sector?

So far, the sky isn’t falling for the technology world. For instance, the United States Patent and Trademark Office remains open. If that office was shut, it could cause problems for companies needing to file patents.

The Postal Service continues to deliver mail. Without mail delivery, delivery of goods, marketing materials and correspondence could have to be rerouted to other methods, such as e-mail or private delivery services.

Many of the other results of the shutdown are annoying and it’s true they could have some impact on tech companies. But many economists have said if the shutdown is relatively short, the impact on the economy will “fairly small, but will widen and deepen if the impasse persists,” USA Today reported.

“A three-week shutdown would reduce fourth-quarter economic growth by 0.5 percentage points, or almost a third of the growth rate of the last 12 months,” the newspaper reported citing data from IHS Global Insight. “A shutdown that lasts a few days would cut growth by about 0.2 points,” says IHS economist Doug Handler, the newspaper adds.

It’s true that businesses that supply the federal government with products or services may see delayed payments. Defense contractors are among those most at risk.

Overall, government contractors could see a suspension in the services or products they normally provide. This is true for smaller firms as well as large companies, such as Microsoft or Google.

It is not yet known which contracts will be suspended during the shutdown, Bruce Herskovics, an analyst for Moody's Investors Service, said.

"One of the hardest things about the shutdown is uncertainty,'' Herskovics told USA Today. "Not just about which contracts are affected but also about how long it will last.''

For instance, Booz Allen Hamilton, a consulting firm which gets 98 percent of its revenue from government contracts and does a lot of work in the IT sector, could be at risk from the shutdown, but officials are unsure of the impact on the company.

"We're spending most of our time now gathering information and answering questions internally,'' James Fisher, a company spokesman, was quoted by USA Today. "There are dozens of 'one-off' questions internally that have to be researched and answered so we can provide proper guidance to our employees.''

Still some sources claim there will be a significant impact on the tech sector.

“A lot of what will get shut down can have a major impact on the technology world, either directly or indirectly,” claims a report from Info World.

One impact that could hit the bottom line relates to larger tech companies planning to hold or file for an IPO. They may be forced to wait. There was a recent flurry of tech-related companies which wanted to go public with their stock and others are likely. For instance, Twitter plans to hold an IPO soon.

There could be an impact on human resources and recruiting, as well. H-1B visas, which are especially important for the tech sector, will not be processed for now.

Smaller-sized firms that are expecting loans from the Small Business Administration may have to wait for their checks. The Federal Communications Commission will not provide certain non-essential services. Also, the Federal Trade Commission’s Do Not Call registry is offline while the government shutdown.

“The final impact of any shutdown will be determined by how long it lasts and how expansively President Obama interprets the necessary function loophole that could allow some parts of the government to stay open, even without a budget,” argues Michael McGeary, the political director at Engine, in a recent article on VentureBeat. “But a government shutdown is also an economic shutdown, and as bad as this looks right now, it will only get worse as we gear up for the debt-ceiling limit to hit on October 17.” 





Image via Shutterstock




Edited by Rachel Ramsey



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