Economy

Long Government Shutdown May Finish Companies Like J.C. Penney and BlackBerry

How long is too long before the shutdown of the federal government begins to batter U.S. gross domestic product and the fortunes of a number of industries? In the case of government suppliers, not long. Additionally, some large American public corporations already have reached a point where a further slip in sales could destroy them. A slowdown or reversal of the small national improvements in consumer spending would crater any chance that J.C. Penney Co. Inc. (NYSE: JCP) and BlackBerry Ltd. (NASDAQ: BBRY) have to steady their declines and would completely ruin their futures.

The holiday season will be a watershed for J.C. Penney. Low on cash and plagued by several quarters of falling revenue, the retailer needs to post big increases in sales during October, November and December. It is already bleeding customers, many of whom have left for rival retailers. Holiday sales across the retail industry are forecast to be lackluster. If the government is shuttered for several weeks, the financial effect will mangle consumer confidence and, in some cases, cause outright layoffs.

J.C. Penney needs to at least hold its low market share and hope that holiday shopping activity will lift the entire industry, even if the sector’s improvement is only modest.

BlackBerry already may be doomed. If it is not, slow smartphone sales over the next three months will finish a company already damaged almost beyond repair. In its most recently reported quarter, BlackBerry lost $1 billion, and its said the loss is expect to be $950 million in the current period. Furthermore, the public corporation said it would fire 4,500 people. Though Fairfax Financial Holding said it would buy the smartphone company, a terrible quarter could cause the buyer to abandon that plan. BlackBerry is another firm that needs to have at least modest fourth-quarter sales.

Any slowdown of the economy due to the shutdown of the federal government would have ripples across a very broad array of industries and companies. For firms like BlackBerry and J.C. Penney, a protracted slowdown could be fatal.

 

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