Shutdown shook businesses, customers

Reports suggest fiscal standoff was bad for economy

WASHINGTON — Orders for a wide range of U.S.-made capital goods plummeted in September and consumer sentiment weakened in October, signs that a budget battle in Washington has held back the economy.

New orders of nonmilitary capital goods other than aircraft, an indicator of business spending plans, fell 1.1 percent last month, the Commerce Department said Friday.

The data suggest businesses may have scaled back investment plans as a political impasse in Washington threatened to lead the government to miss payments on its obligations, although firms also could be trimming these plans over more general doubts regarding the economy’s strength.

“We are looking at a situation where businesses were preparing for the chaos in Washington which actually happened,” said Joel Naroff, president of Naroff Economic Advisors in Holland, Pa.

The government impasse was resolved, though not before a partial government shutdown left hundreds of thousands of people out of work for weeks and delayed the release of a slew of economic data.

Although the economy was already struggling before the impasse, economists estimate the shutdown will shave as much as 0.6 percentage point off annualized fourth-quarter gross domestic product through reduced government output and damage to consumer and business confidence. Even before the impasse, the pace of hiring by companies had slowed in September.

Separately, the worries over the economic fallout helped push consumer sentiment in October to its lowest level since the end of last year, according to the Thomson Reuters/University of Michigan’s final reading of consumer sentiment for the month.

Stores will probably see subdued sales in the coming weeks, according to Mark Vitner, a senior economist in Charlotte, N.C., for Wells Fargo Securities.

“I think holiday retail sales are going to have a hard time rising much more than 3 to 4 percent,” Vitner said. “The economy had less momentum going into the government shutdown than we thought.”

The federal government shut down for 16 days in the first half of October as congressional Republicans sought to undermine President Barack Obama’s signature health care law as a condition of funding the government.

Friday’s data bode poorly for the outlook for GDP in the third quarter as well. Shipments of nonmilitary capital goods other than aircraft fell 0.2 percent in September.

These so- called core shipments, which the government uses directly for calculating total economic growth, have fallen in two of three months in the third quarter.

“Most businesses are continuing to sit on their hands rather than aggressively invest and expand,” said Stephen Stanley, an economist at Pierpont Securities in Stamford, Conn. The data led Paul Ashworth, an economist at Capital Economics in Toronto, to lower his forecast for third-quarter economic growth to a 1.8 percent rate from a 2 percent rate.

Investors on Wall Street appeared to take little direction from the data. The Standard & Poor’s 500 stock index hit another record high, closing at 1,759.77, thanks in part to gains by Amazon and Microsoft.

Bloomberg News contributed.