August has been unusually rainy and cool by Washington, D.C. standards, but that didn’t stop Congress from blowing hot air around town before departing for their month-long “District Work Period,” otherwise known as the August recess.
Congress managed to heat things up before leaving town by failing to agree on a plan to fund the government past Sept. 30, when the current Continuing Resolution (or “CR”) expires. CRs are used to provide funding for government programs at current levels when Congress fails to pass appropriations bills for the next fiscal year. They have historically been used infrequently, but they’ve become the norm in recent years. That’s because of the deep divides (plural) in Congress between Democrats and Republicans, Democrats and Democrats, and Republicans and Republicans. Many Democrats favor continued, or even increased, spending on many government programs (except Defense), while many Republicans favor reduced spending on most programs (except Defense). In most years that’s enough to create a temporary impasse, but enough common ground can usually be found to cobble together a compromise and avoid a government shutdown.
Differences between Democrats and Republicans these days are expected, but to these are added the splits among both parties. Some more fiscally conservative Democrats, particularly Senate Democrats up for re-election in conservative states, are uncomfortable with their party’s continued support for increased government spending. Some hard-line Republicans, including some potential 2016 Presidential candidates, are determined to cut the size of government, and they’re willing to use the upcoming debates over increasing the debt ceiling and continued funding of the government to make their point, even if it means a government shutdown.
Political pundits are busy tut-tutting about this, pointing out that Republicans will likely be blamed if no agreement is reached (as happened during the Clinton Administration). Meanwhile, Republican party leaders are urging calm and predicting that a solution will be found. History suggests that is true, but as they say on Wall Street, “past performance is no guarantee of future results.” In any event, some Republicans don’t seem to care.
The significance of all this to forgers is the potential for a slowdown in the economy due to continued uncertainty about the government’s fiscal policy. Most forgers have seen an improvement in business during the past year due to increased activity in manufacturing, including the transportation and energy sectors. But nobody is ready to declare that the economy is strong and growing fast enough to withstand the shock of a government shutdown.
The stalemate is also creating problems for other issues of importance to manufacturers, including forgers. The momentum for comprehensive tax reform, while still positive, has slowed somewhat as members of Congress try to assess the impact of reform and debate whether it should be used to raise additional revenue or be kept “revenue neutral.” As readers of this column know, the Forging Industry Association (FIA) has been very active in urging comprehensive, revenue-neutral tax reform that treats all manufacturers alike and stimulates economic growth.
Energy exploration and development policy is also facing headwinds, with the Keystone Pipeline still stalled and new proposed federal regulations on hydraulic fracturing, the process that has led to an unprecedented boom in natural gas recovery. Both the pipeline and continued development of shale gas reserves offer opportunities for forgers that serve the energy sector.