Sequester dents US earnings, but full impact still unclear

The US federal government began implementing across-the-board spending cuts last month, known formally as sequestration. The US federal government began implementing across-the-board spending cuts last month, known formally as sequestration.A range of US companies are warning investors that sequestration is starting to bite, but executives are still unclear how deep the wound will be.

The US federal government began implementing across-the-board spending cuts last month, known formally as sequestration but more commonly called “the sequester.”

It has meant everything from furloughs for air traffic controllers to fewer planes for the US Navy to smaller subsidies for farmers. So far this earnings period, executives from Lockheed Martin to IBM and Delta Air Lines are flagging how those US budget cuts cost them some sales in the first quarter. But the bigger concern is how much they might lose in the months to come as the budget cuts begin to really take hold – and getting a detailed forecast has proven hard to come by.

 “Sequestration is a reality, but it’s unfolding slowly at this time,”United Technologies Chief Executive Louis Chenevert said in an interview Tuesday. “We will understand more what sequestration does as we get to the end of the year.” Market strategists said the fears about sequestration feed into a broader decline in confidence, underlined by a recent rise in unemployment claims and decline in factory activity in parts of the country.

“These CEOs saying it’s all three to four months out, it kind of plays into that,” said JJ Kinahan, chief derivatives strategist at TD Ameritrade. “The sequester is one more data point for people to worry about.” Yet investors are not spooked. Since March 1, when the sequester kicked in, the S&P is up 4 per cent, continuing a sharp run that started last November.