If The Federal Government Shuts Down, So Does Defense

A possible government shutdown could harm defense sector earnings this quarter. Historically, shutdowns discourage investors.

Defense companies like Northrup Grumman, Boeing and Lockheed Martin may be in for some pain if the government misses its September 30 at midnight deadline to avert a shutdown. If it happens, offices that process government payments to defense contractors would close, shutting off their main revenue stream.

Since 1980, the government has shut down 10 times, each causing government spending to be indefinitely put on hold. The shutdown in 2018-2019 delayed $22.8 billion in government spending and services, lowering the projected GDP by more than $10 billion dollars, adjusted for inflation.

“That’s a bit of a negative for defense contractors,” said Richard Safran, managing director of aerospace and defense at Seaport Research Partners. “Company cash flows go to zero for the period that it’s been shut down.”

The 2018-2019 shutdown lasted 35 days and sent Northrup Grumman’s, Boeing’s, and Lockheed Martin’s stocks crashing about $100 per share. It was the biggest dive the stocks had taken at the time following years of constant growth.