The recent government shutdown and politician bickering looks like it will continue for an extended period of time. This problem could have consequences that ripple through the economy for some time.
We are concerned that it will have a detrimental effect on consumer confidence and the demand for such items as the new Apple (AAPL) and Google (GOOG) products that are generally considered discretionary purchases.
Shutdown's Effect on Broader Economy and Christmas Shopping Season
October 1, 2013 brought the latest in political conflicts in the United States with a shutdown of many government services and furloughs for many non-essential government employees. Although the Republican theory is that their spending concessions will serve to make the country more economically secure, the immediate effect is likely to put a damper on personal spending across the board. The thousands of federal workers help to support local economies all across the country, which will inevitably lead to a slowdown in retail, entertainment and a range of other industries leading up the crucial Christmas shopping season.
Manufacturers Prepare For A Lull
Over the past two years, the economy has made considerable positive strides. Manufacturers welcomed the uptick in orders and revenues. However, the government shutdown and general disruption in the economy is expected to trigger another slowdown. Manufacturers will put a hold on orders for inventory until they feel assured that customers will have the discretionary income to make new purchases throughout the year.
Apple's Revenue and Profits
The expected halt in personal spending is not good news for large, consumer-driven companies like Apple, who recently unveiled a new version of its iPhone. Though many people now consider their phones a necessity, the shutdown's drag on personal income and confidence in the economy could cause people to delay upgrading to the new model. Other applications and improvements may have to go on hold while the country political parties find a way to resolve differences and get the country on-track again.
Google's Revenue and Profits
Another company that may be affected by the shutdown's consequences is Google. Google has recently been making aggressive efforts to compete with Apple on a variety of fronts, and consumer's reluctance to part with money will hold up their plans to take on even more of the market share. Their Android OS system has made significant inroads over the Iphone operating system, and their wide range of applications for mobile phones are now the standard for the industry. Google has unveiled a system for consumers to integrate their various computer devices, but they may have to wait for sales to of the new product to hit expected levels until the shutdown has been resolved and people feel they can rely on the economy to continue to recover.
Investors need to consider the actual and psychological negative consumer sentiment and how it may impact the actual Apple and Google revenues and profits over the next two quarters due to the actions taking place (or not taking place) in Washington D. C.
We believe it may be a good time to take some profits in these two widely held stocks.