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Wall Street Beat: It's business as usual for tech, but gov't crisis casts shadows

A month-long stoppage would impact U.S. tech spending, a debt default could have disastrous consequences

By Marc Ferranti
October 4, 2013 04:41 PM ET

IDG News Service - The tech sector appears to be going about business as usual in the face of the U.S. federal government shutdown, but some industry insiders are nervous about a long-term stoppage or, even worse, the possibility of a debt default if a political compromise on the budget is not reached.

Conventional wisdom among economists holds that for every week the government remains shut due to the budget impasse over the U.S. health reform law, or "Obamacare," about 0.1 percent is shaved off economic growth for the quarter, according to Andrew Bartels, chief economist at Forrester Research. "That's about .4 or .5 percent off the economy in about a month, which translates into about 1 percent off tech spending in the U.S. for the quarter," Bartels noted.

If Congress later this month fails to raise the debt limit to fully fund government spending, a full-scale global economic crisis, with repercussions for tech, could follow, Bartels said.

Republican John Boehner of Ohio, speaker of the U.S. House of Representatives, declared Friday that he would work to prevent a debt default. But there are landmines along the path to a compromise, among which are a possible effort on the part of some Republicans to depose Boehner as speaker.

"The failure to raise the debt ceiling could have serious consequences for the U.S. economy and have a ripple effect globally," Bartels said. The amount of money taken out of the U.S. economy and the potential of a rise in interest rates could cut gross domestic product by up to 5 percent to 6 percent, bringing it into decline, Bartels noted. That would mean a 10 percent decline in tech spending in the U.S. and likely an 8 percent drop in global tech spending.

Tech sector leaders appear to be spooked.

"It is unthinkable that the United States could default on its financial commitments, and it would be the height of irresponsibility for any public official to consider such a course," reads a statement issued by AT&T Chairman and CEO Randall Stephenson. "In fact, even the discussion of default poses great risk to our economy and to our country."

Government spending disruptions would stall what so far appears to be solid business as usual for tech. While there has been some turbulence in the stock market lately, shares on major exchanges, including tech company stock prices, edged up Friday on Boehner's comments.

The Nasdaq Computer Index of more than 100 tech companies closed at 1814.15, up by 12.34 points, and is up by almost 17 percent for the year.

The strong stock market has encouraged initial public offerings of tech companies. Those tech companies that have gone public so far this year have enjoyed good returns, and Thursday the short-messaging social-network darling Twitter filed with the Securities and Exchange Commission for its own IPO.

Reprinted with permission from IDG.net. Story copyright 2014 International Data Group. All rights reserved.
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