From Chick-fil-A to UPS, top executives of Georgia firms are worried about the impasse over the federal debt ceiling. Some already are noticing a financial fallout, including higher interest rates and fewer job prospects.
To a person, they echoed what Edward Callaway, chairman and CEO of Callaway Gardens, said: “Uncertainty is the enemy of business investment.”
That enemy has already done damage.
Lenders are raising interest rates on some newly proposed deals in the struggling commercial real estate industry, said Bob Peterson, chairman and CEO of Atlanta-based Carter. That, in turn, has caused some property purchases to be postponed, which is not what the weak commercial market needs right now.
Because of the uncertainty, Peterson said, some commercial lenders are sitting on the sidelines. Others are starting to raise rates to cover the increased risk of the unknown.
“I’ve been seeing it over the last 48 hours,” as the gridlock intensified, Peterson said.
Dan Cathy, president and chief operating officer of Chick-fil-A, worries that those higher rates will move on to consumers.
“If we lose our [AAA] credit rating,” Cathy said, referring to the nation’s rating, “it will have a big impact on interest rates. Consumers are already getting squeezed, and it will have a trickle-down effect to us, as well.”
Cathy also said he was concerned about the “paralyzing, uncollaborative tone in Washington … that prohibits productive, working relations.”
Even if the debt ceiling is increased now — following all the political fighting — U.S. Treasuries may still be downgraded, said Bob Webb, chairman of the Troutman Sanders law firm.
“There are a whole host of [financial] issues that we’re concerned about that will require lots of analysis to be done,” Webb said.
In other words, uncertainty is breeding more uncertainty, including whether the U.S. will stand behind the financial promises it makes to investors.
“We are hurting our standing in the world and general confidence in us,” said Marty Flanagan, president and CEO of the Invesco money management firm. A default would be counterproductive, he pointed out, because the higher rates the government would have to pay would further balloon the deficit.
This is such an important issue that the McKenna Long & Aldridge law firm has been giving daily updates to some of its clients for more than a month now, said Jeff Haidet, the firm’s chairman.
On a short-term basis, these top execs said they thought a deal would be reached before or shortly after Tuesday’s deadline.
But Callaway and others think a longer-term problem looms in the form of a very weak economy.
“We are husbanding cash,” Callaway said of his company’s financial posture right now. “We are not hiring [permanent workers] in the face of a possible downturn. … We are preparing for a rough ride.”
But while UPS chief Scott Davis is worried about the economic uncertainty, he struck a relatively positive note if the debt ceiling gets raised.
“If Congress and the president resolve this debt-ceiling issue satisfactorily in the next week, the mood of the country could change pretty quickly,” Davis said. “We could see demand picking up.”
Still, he cautioned, “there’s a huge variability on where the economy can go. We need to come up with a big, serious, long-term solution on the debt.”
– Henry Unger, The Biz Beat
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