Sat, Apr 09, 2011 - Page 7 News List

Shutdown may hurt US economy

TOLL:In the event of a government shutdown, Washington itself could be the hardest hit, as 13.7 percent of the area’s workers are employed by the federal government

AFP, WASHINGTON

A possible US government shutdown of a few days would not hurt the economy, but a lockup of three weeks or more would hit growth, especially in the nation’s capital, economists said on Thursday.

With Congress still arm--wrestling over budget cuts as last night’s midnight deadline loomed, the country faced the imminent prospect of 800,000 “non-essential” government workers being sent home without pay.

The shut down would spell a loss for government workers of about US$2 billion each week, cash that filters through the economy via mortgage payments, grocery shopping and trips to the cinema.

Cuts in government services could cripple small entrepreneurs waiting on government aid to build, while Wall Street would be left without an all-important rudder supplied by regular economic data releases.

National parks from the Grand Canyon to Yellowstone would close, hitting the restaurants, hotels and shops that depend on their visitors.

However, Gus Faucher, director of macroeconomics at Moody’s Analytics, said a short lockout would not have a lasting effect.

“If this lasts a few days, a week or less, I don’t think it will have much economic impact,” he said.

The previous shutdown in 1995 “didn’t appear to have affected the economy at all,” he said.

However, Nomura Securities economists calculated the three-week 1995 shutdown reduced quarterly US economic growth by 0.09 to 0.17 percentage points per week.

A three-week lockout of workers, according to Faucher, would begin taking a toll.

More and more businesses would be left waiting for permits and rulings and contractors would struggle to keep staff on as they go for longer without payment.

However, the biggest hit could be in the very place where the budgets are decided: Washington.

About 13.7 percent of the area’s workers are directly employed by the federal government, compared to 2 percent nationally, according to Moody’s Analytics.

Officials in Fairfax county, Virginia, just outside of Washington, were already anticipating some impact on their 1.1 million population.

Thirteen percent of Fairfax residents are employed directly by the federal government; 22,000 federal workers go to offices in the county.

The county’s thousands of small and large contractors make it the largest recipient of federal procurement funds in the country.

“In general, we largely escaped the Great Recession, largely because of our dependence on government contracting,” country supervisor Pat Herrity said. “That could turn around and bite us.”

A short shutdown would not have much overall impact, except on the smallest companies, like restaurants who serve the -lunchtime crowds from government-heavy offices, he said.

“In business, uncertainty is not your friend. If you are a small vendor, do you order food for the next week?” Herrity said.

Roy Meyers, an budget expert at the University of Maryland--Baltimore County, points to another hidden cost.

He said that government contractors may have begun figuring a shutdown into their own work as early as January, when the newly Republican-dominated House of Representatives started work on the budget. Some would build a risk premium into their bids; others might place a hold on hiring new people.

“The anticipatory impacts of the shutdown are just as important,” Meyers said.

It can be small per contractor, “but it adds up,” he said.

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