On Saturday, September 30—with just 32 minutes left on the clock—the country was spared from a federal government shutdown, as Congress passed a 45-day budget which would keep things running.
Hearing this news, many in manufacturing were relieved, as a shutdown would have been a significant disruptor to the industry with widespread repercussions.
One of the main effects would have been financing. For example, after the supply chain challenges brought about by the pandemic, the government stepped in with legislation like the CHIPS and Science Act, which infused billions of dollars into bolstering domestic manufacturing of computer chips.
Similarly, the Inflation Reduction Act led to more than $110 billion in new clean energy manufacturing investments, including billions in the electric vehicle (EV) supply chain and solar manufacturing. If the shutdown had occurred, the progress being on re-globalization efforts and renewable energy initiatives would have stalled.
In addition, the availability of federally guaranteed loans to manufacturing companies might have limited or delayed, impacting the liquidity and operational capabilities of these companies.
Additional effects might also have included:
- Delays in Permitting and Regulatory Approvals: Manufacturing companies require permits and regulatory approvals from federal agencies. A shutdown could delay these processes, especially for companies in highly regulated sectors like medical device manufacturers.
- Supply Chain Disruptions: The shutdown might disrupt the supply chain if government-operated or regulated entities, such as customs and air traffic control, would have been affected. Air traffic controllers are considered essential workers, but it’s unfair to expect employees to work without pay. In the 2019 shutdown, many air traffic controllers called in sick. Such incidents could delay imports and exports of raw materials and finished goods.
- Reduced Demand: The shutdown would also have resulted in furloughs and delayed wages among federal employees. This could reduce consumer spending and consequently the demand for manufactured goods.And the longer the shutdown, the greater the potential impact on economic growth and consumer confidence, which could further affect manufacturing companies through reduced overall demand.
- Impact on Small and Medium-Sized Manufacturers: While it’s true that a government shutdown would impact all manufacturers, small to mid-size (SMB) manufacturers would have been more vulnerable to the effects. Large manufacturers have the financial wherewithal and diverse product lines to allow them to absorb the impact caused by market volatility. SMBs, on the other hand, operate with thinner margins. They often only produce a few products in one market segment. And their materials are obtained through simple supply chains. They may also rely more on government contracts, resources, services, and programs. With a shutdown, federal contracts would have been delayed or resulted in canceled orders, affecting an SMB manufacturer’s revenue.
- Research and Development: Manufacturing also relies on government-funded research and development projects. During a shutdown, R&D may experience delays or temporary halts in work, affecting innovation and product development.
Another primary concern surrounding the shutdown was uncertainty. Many went into the weekend worried that come Sunday, a shutdown would happen. And if it did, they wondered how long it might last. Now, these worries are postponed for another 45 days, but if Congress can’t reach a federal budget agreement, we could be right back where we started—uncertain of the future. A lack of confidence could cause manufacturers to reduce investments in new projects, equipment, and staff due.
In these turbulent times, manufacturers may feel frustrated because they lack any control over what will happen, but one thing they can do is to try to foster resilience within their own operations. They can do this by employing innovative strategies and technologies that can help them adapt swiftly and navigate complexities.
We must remember that it is the spirit and inventiveness of manufacturers that have overcome past challenges, and it will continue to be this strength that ensures growth and advancement, even as we count down to the next budget deadline.