3 Industries That Are Falling Victim To The Government Shutdown

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Includes: AAL, COLM, DAL, RDFN, RLGY, RMAX, UA, UAL, VFC
by: William North
Summary

We are currently on day 30 of the shutdown and a compromise between the two parties is nowhere in sight.

The shutdown reaches across a broad spectrum of industries for a variety of different reasons.

Americans, American businesses, and the American economy will suffer greater and greater consequences the longer the shutdown continues.

Review your portfolio and evaluate how vulnerable each one of your holdings is to current government conditions.

Day 28 of the government shutdown and there's little reason to believe it is going to end in the near future.

In the end, the losers of this dispute are the American people, American businesses, and the American economy. There are countless go-fund-me pages for Federal workers who are living without a paycheck. There are many businesses that are publicly stating how much money they are losing. And lastly, the White House itself is estimating .13 percentage loss to GDP for every week the shutdown lasts.

Although many securities have drifted higher in recent weeks, I believe many investors are not taking the potential impact of the government shutdown seriously enough. In this article, I am going to focus on three industries that I believe have been and will continue to be adversely impacted by the government shutdown.

Housing

There are many moving parts that go into buying a home. First, people need to be able to secure a loan to be able to afford the house. Second, people need income in order to fund the purchase. Third, people want to feel a sense of economic security when they purchase a home. All three of these aspects have been negatively impacted during the government shutdown.

First, many lenders that rely on the government for information of funding are either backlogged or are just completely closed during the government shutdown. Up until last Sunday, the IRS was not able to process tax return verifications, meaning the information many lenders rely on to confirm a potential borrower's finances was not available. Although it is now back up and running, there will be a backlog of requests and delays for potential home buyers. Additionally, VA and FHA programs are still going on but are delayed as "9 percent (of realtors) reported delays with FHA loans and 6 percent with VA loans." Lastly, the USDA loan program that provides more than 100,000 low-interest mortgages a year is not functional at all.

Secondly, 420,000 Federal workers are not being paid, meaning they do not have the necessary funds or income to be able to make such a purchase. Also, many workers may feel uncomfortable making a large life purchase when their income is on hold until further notice. This is supported by 9 percent of realtors claiming they had lost a client who was a federal worker due to lost payment or being furloughed.

Thirdly, like I briefly touched on in the paragraph above, people do not want uncertainty, in the economy and politics, when making a really large purchase, such as a home. Even if someone's income isn't directly impacted by the government shutdown, the sheer uncertainty can be enough to make them put their purchase on hold. The National Association of Realtors found general uncertainty to be the number one reason that potential buyers pulled out of a deal in the last week.

Potential Losers of the Shutdown (including but not limited to): Realogy (RLGY), Redfin Corporation (RDFN), RE/MAX Holdings, Inc. (RMAX).

Airlines

A few days ago, Delta Air Lines' (DAL) CEO went on the record saying that the company was projecting a loss of $25 million due to the shutdown and another $25 million for every month it continues. The reasons behind this include government workers not traveling for work, longer TSA lines, and people feeling less safe to fly.

Government workers that who furloughed are no longer going to have business related travels, meaning the demand for flights is going to decrease. In fiscal year 2016, the Federal government spent around $215 billion reimbursing government workers for their commercial flights. Although there are still many crucial government workers still on the job, this large number of consumers will no longer be buying up as many flights as before.

Additionally, the average consumer might not want to travel due to logistical concerns as well as safety concerns. The Delta CEO reported that lines in the Atlanta airport were as long as 90 minutes. In Miami, a terminal was closed early due to a lack of TSA staffing as many workers were calling in sick. Lastly, normal oversight of airlines operations, such as repair shops, is not occurring. Even a furloughed inspector went on the record stating: "Every day the government stays shut down, it gets less safe to fly." All of this may make the average consumer less likely to travel, reducing the demand for commercial airplane tickets.

Potential Losers of the Shutdown (including but not limited to): Delta Air Lines, Inc., United Continental Holdings, Inc. (UAL), American Airlines Group Inc. (AAL).

Outdoor Apparel Industry

This industry might not be impacted as heavily as the housing or airline industry, but I wanted to include it to show how far reaching a government shutdown is to the economy. In addition to less people traveling because of the actual flying process, many will no longer want to travel because their destination, such as a national park, is closed during the government shutdown.

For example, in Texas' Big Bend National Park, many visitors are faced with a dilemma. Camping in Big Bend national park is illegal without a permit; however, due to the government shutdown, permits are not being issued. For California's Joshua Tree Park, officials were forced to close the park due to unsanitary and dangerous conditions for visitors. The list of examples goes on and on.

Since people are no longer going on outdoorsy vacations in these national parks, they have no need to buy outdoor apparel for the vacations. Columbia Sportswear's (COLM) CEO Tim Boyle went on the record saying that over time, the government shutdown will "definitely" have an impact.

Potential Losers of the Shutdown (including but not limited to): Columbia Sportswear, V.F. Corp. (VFC), Under Armour (UA).

Conclusion

Historically, government shutdowns have not impacted investors too much. In fact, the median performance of the S&P 500 (SPY) over the past 18 government shutdowns was 0.0%. That being said, this government shutdown is the longest in history and it is quite evident that certain businesses will begin to feel quantitative impacts of this shutdown more than others. While these are three valid examples of consequences spawning from the government shutdown, countless other industries are impacted as well. If you take one thing away from this article, make it this: Review your portfolio and evaluate how vulnerable each one of your holdings is to current government conditions.

The American economy is one well-oiled machine; however, when one part of the machine starts to falter, the rest of the machine can be carried down with it. In the best interests of its citizens, business, and the overall economy, I hope our representatives and President Trump can reach a deal soon to provide stability for the United States.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.