Shutdown may idle non-federal workers next week

• Most contractors say shutdown would hurt their businesses
• Some meetings with defense contractors have been canceled
• Arkansas and Georgia among states most affected

The federal government shutdown is already affecting contractors and threatens to dampen private-sector employment, at least in the near-term, industry officials say.

Twenty-nine percent of contractors say a shutdown would cause them to delay planned hiring, and 58% said it would have a negative effect on their businesses, according to a survey of 925 contractors this week by the National Association of Government Contractors.

One Federal Solution, which provides information technology, health care and training services to various government agencies has furloughed 107 of its 115 employees because federal officials said they're non-essential, says CEO Abdul Baytops.

"We're concerned about employees losing faith" in the company "even though we have no control over it," Abdul says.

Advanced Systems Development, an information technology contractor, already has furloughed an employee who sets up computer networks for the Environmental Protection Agency because federal workers weren't available to approve new funding for the project, says company Chief Financial Officer Mary Lou Patel.

Daniel Stohr, spokesman for the Aerospace Industries Association, which represents defense contractors, says, "We've already seen meetings (between contractors and Defense Department officials) that have been canceled."

Such cancellations could delay work on ongoing projects, such as new weapons systems or information-technology maintenance, Stohr says. Defense contract workers also could be temporarily laid off because the federal employees who supervise them are on furlough or managers aren't available to move ahead with new equipment purchases, according to the aerospace group.

Besides the Washington, D.C., metro area, states with high concentrations of both federal and contract workers include Hawaii, Arkansas, New Mexico, Oklahoma and Georgia, according to Moody's Analytics.

If the shutdown lasts a week or longer, as many as 250,000 to 300,000 contract workers could be affected in some way, says Fernando Galaviz, chairman of the National Federal Contractors Association. "A week would be like a bad headache," he says. "If it's more than two weeks, they can expect a lot of negative impact."

Galaviz says his members are mostly small businesses that handle tasks such as computer network administration, facilities management and research. "If we have 20 people on a network help desk, (a federal department) may reduce that to 12," he says.

Construction companies that build courthouses, dredge rivers and renovate U.S. park facilities also would be hurt, according to Associated General Contractors, a trade group. Projects could be delayed because government supervisors aren't on job sites to answer critical questions or approve changes, says AGC spokesman Brian Turmail.

Several thousand construction workers could be affected if the shutdown lasts at least a week, he says.

Although most contract workers would be sidelined temporarily, the disruption comes at a pivotal period, with monthly job growth slowing to a pace of 148,000 the past three months from 224,000 the previous three months.

Concerns about a government shutdown have largely focused on the 710,000 to 770,000 non-essential federal workers who are being furloughed, according to estimates by JPMorgan and IHS Global Insight. Each week the government is partially closed would shave 0.12% to 0.16% off annualized economic growth in the fourth quarter, the firms project. But those estimates are based on the lost wages or output of federal employees.

A Moody's study that also examines the impact on contract workers and ripple effects across the economy estimates that a shutdown of even a few days would trim fourth-quarter growth by two-tenths of a percent.