Scheduled to kick in on Friday, the sequester will result in $85 billion worth of non-discriminate, across-the-board spending cuts over a seven month period. Unless Congress comes up with an alternative deficit-reduction deal, these cuts will continue until $1.2 trillion is saved over the next 10 years. With such a partisan Congress, we should expect to see the sequester and some extremely agitated governors across the country.
Effects of the Sequester
Over the next 10 years, we will see $500 billion in military spending cuts and another $500 billion in discretionary spending cuts, some of which will go into effect immediately. The Pentagon will incur $46 billion in cuts, including the furloughing of 5,000 border patrol agents and 800,000 Department of Defense civilian employees. The TSA, EPA, and the Department of Agriculture will all receive cuts, and unemployment checks will be trimmed by roughly 10 percent.
The Congressional Budget Office, which is comprised of nonpartisan economists, estimates the sequester will cost the United States 750,000 jobs by the end of 2013. Others, such as George Mason University economist Stephen Fuller, have more dire estimates. Fuller predicts over 2 million lost jobs and a 1.5 percent rise in unemployment. As many as 125,000 low-income families will lose their federal rent assistance.
“The sequester will leave families who are already stretched to the limit scrambling to figure out what to do,” said President Obama.
The two political parties are becoming increasingly polarized. The Democrats want more discriminate cuts and another increase in tax revenue, while the Republicans, who accepted additional tax hikes during the Jan. 1 fiscal cliff deal, are not going to yield again on this issue. Although they have a House majority, the GOP is severely divided.
Put simply, with Congress showing a reluctance to work together, this sequester looks imminent.
Impact on Self-Storage Operators
As we’ve seen over the past few years, self-storage has proven to be recession-resistant.
On one hand, a weak economy and slow housing market can be positive for the storage industry, as home downsizing and foreclosures often result in more storage tenants. Less home ownership results in more home renting, which is a positive for storage operators.
On the other hand, self-storage operators do well when Americans relocate, and people don’t move during economic and housing breakdowns. If the moving industry suffers, self-storage feels the aftershock. According to the U.S. Census, 36 million Americans relocated in 2012–a huge increase from the 35.1 million Americans who moved in 2011. It’s no wonder that 2012 was such a phenomenal year for storage operators.
In the Storage Facilitator’s opinion, storage operators should be relatively unaffected by the sequester; if we made it through the last recession, this minor downturn should be business as usual, so to speak. Additionally, Congress will have another viable opportunity to cancel the spending cuts when it convenes again in May, even if the sequester does go into effect on Friday.
Photo courtesy of Wes Duvall.
