Uncertainty might have become a new political certainty.
After years of living with partisan brinksmanship in Washington, many business leaders took the federal government shutdown in stride Tuesday, expecting a minimal impact on the Massachusetts economy, at least in the short term. The greater threat, they said, will come in about two weeks, when the federal government reaches its borrowing limit and Congress must increase it — or allow the United States to technically default on its debt.
The last time Congress tested the debt ceiling two years ago, the political stalemate unsettled global financial markets, caused stocks to tumble around the world, and dealt a setback to the economic recovery before Republicans and Democrats reached an eleventh-hour compromise.
“The government can be shut down for quite a while without doing serious damage to the economy,” said Nigel Gault, cochief economist at The Parthenon Group, a Boston consulting firm. “Triggering the debt ceiling would very likely cause a recession. And if we go right up to the last minute, stock markets will panic.”
The government shutdown is just the latest in Washington’s man-made crises to threaten the national and state economies. The automatic budget cuts known as sequestration — the result of compromise that settled the debt ceiling crisis of 2011 — have already buffeted Massachusetts, which, with its concentration of universities, hospitals, and defense contractors, relies more heavily on federal research and defense spending than many other states.
An estimated 45,000 federal employees work in Massachusetts, according to the US Labor Department. The Defense Department spends more than $500 million a year on wages and salaries for its 7,000 civilian workers here; furloughs will suck as much as $45 million in income from them and the state economy, according to a Senate Armed Services Committee report.
And the longer the government shutdown continues, economists said, the more painful it could become for federal workers and the Massachusetts economy. Since the automatic budget cuts went into effect in the spring, the state economy has slowed noticeably, with the unemployment rate rising nearly a point, to 7.2 percent in August
In an assessment of the state’s economic condition released Tuesday by the University of Massachusetts and the Federal Reserve Bank of Boston, local economists said federal budget policies — or the lack of them — are undermining the state’s growth.
“The sequester, the budget battle, and the debt limit brinksmanship threaten our fragile and sluggish recovery,” the report said, “and only extend the pain being experienced by families and businesses still awaiting an opportunity to participate in a recovery that is now several years old.”
Former Massachusetts representative Barney Frank, who chaired the House Financial Services Committee from 2007 to 2011, said he does not think the shutdown reflects the viewpoint of the majority of House Republicans, only its most ideologically driven ranks. He said business is generally terrified at the idea that political leaders might not raise the debt limit.
Chris Geehern, spokesman for the Associated Industries of Massachusetts, the state’s largest employers group, said the outcome of the impending debt limit debate is creating worries among Massachusetts companies.
And the uncertainty holds back their rate of hiring, expansion, and investment.
“The government’s track record is not inspiring a lot of confidence,” Geehern said. “I don’t think anybody believes Congress would push the country toward default, but the very fact that we’re talking about it raises the specter of uncertainty for everybody.”
Mark Verrochi, owner of Red Barn Coffee Roasters in Faneuil Hall, said his shop is already feeling the impact of the impasse in Washington.
The nearby National Park visitor center near Quincy Market is visited by as many as 1 million people a year, but with no one staffing it Tuesday, Verrochi said customer traffic dropped to a trickle at his shop.
“One of the reasons we’re paying the big bucks for rent is that attraction,” Verrochi said. “Today, it’s like having a cafe at the aquarium with the tanks shut down.”