Government Shutdown: U.S. Tech Market Consequences


The insanity of the U.S government shutdown has furthered implications in various economic sectors, and as the economy faces catastrophic consequences, the tech industry is estimated to see decline and damage for fourth quarter 2013 and first quarter 2014.

Economists have quantified that each week the federal government shutdown continues, 0.1 to 0.2 percentage points will be taken away from fourth quarter real GDP growth, said Andrew Bartel, senior analyst at Cambridge, Mass.-based Forrester Research.

"The emerging consensus is that if it's a four-week shutdown, the expected 2.5 percent reduces to 2 percent," said Bartel. "It looks small, but a percentage of slowdown could translate to hundreds, thousands of jobs that don't occur and a million dollars of tech buying that will not occur."

[Related: Public Sector VARs Brace For Government Shutdown Impact]

If the government adopts House Speaker John Boehner's six-week extension proposal, there will be a 5 percent drop in the fourth quarter, he said. With the uncertainty companies face, those dealing with the federal government will certainly pull back, Bartel said.

"Companies that are dealing with the federal government, directly or indirectly, are going to be experiencing uncertainty with their revenues, and it will cause them to be cautious when it comes to tech purchases," said Bartel. "We are expecting $3 million in revenue from federal contracts that's on hold. That is $3 million of revenue we're not going to get. We better pull back on spending on other investments because that revenue is not coming in."

The tech industry faces cutbacks and losses in business investments and consumer spending, said Bartel.

"Federal government represents about 8 percent of U.S. tech spending. Right now we can assume that there is none of that federal spending occurring in October," said Bartel. "If the shutdown does not end and goes into November, there is a real risk that will be lost. It's hard to say how much, but 2 percentage points, of the 8 percentage federal government represents, will be lost."

Greg Douglas, vice president of business development at Eatontown, N.J.-based Yorktel, said his company does less than 50 percent of work in the public sector and is currently waiting to resume work.

"We are affected like the rest of the government, where our employees are waiting to resume work," said Douglas. "We are just repurposing our workers wherever possible in the public sector and waiting for the government to resolve as a whole."

NEXT: Shutdown Affects Small Federal Government IT Service Provider