The short-term budget deal that ended the federal government shutdown and averted a possible default on US debt extends a period of uncertainty that could hurt the economy in both blunt and subtle ways, local business owners and executives say.
Many businesses are skeptical that Congress can avoid another damaging crisis before the stop-gap legislation expires early next year. As a result, hiring decisions are being delayed. Major equipment purchases are getting shelved. Clients are balking at making deals until they have a better idea about where the economy and federal policies are headed.
Catherine Phillips, co-owner of Phillips Precision Inc., a Boylston manufacturer, said she’s putting off hiring equipment operators because some of her customers that contract with the government, such as defense and medical supply firms, don’t know what will happen to automatic federal budget cuts known as sequestration. Last week’s budget deal left the future of sequestration unresolved — and Phillips customers unable to commit to orders.
“I could hire one or two more people, but I want to hold off,” said Phillips. “It’s affecting a lot of companies’ hiring decisions. It’s throwing a cold blanket over everything. Everyone is proceeding with great caution.”
The latest partisan stalemate sucked an estimated $24 billion from the US economy in just over two weeks, according to the bond rating agency Standard and Poor’s. Massachusetts, with a high concentration of federally funded defense and research programs at private companies, hospitals, and universities, is particularly sensitive to US budget polices.
The state’s economy has slowed noticeably in recent months as automatic budget cuts have taken effect. The state unemployment rate has risen nearly a point since April, reaching 7.2 percent in August.
One defense contractor hit by the Washington budget brawls is Lexington’s Oasis Systems LLC, which provides information technology services to the Department of Defense. Tom Colatosti, chief executive of Oasis, said he has lost about 10 to 15 percent of his defense business due to recent sequester cuts — and has had to reduce his workforce by an unspecified number of employees.
The federal budget battles have been “very difficult,” said Colatosti, who worries that another fight is coming in a few months.
“The lack of leadership in Washington is almost breathtaking,” said Colatosti, whose firm employs about 600 people around the nation. “It’s a total breakdown and abdication of leadership. It’s appalling.”
Kevin Keith, co-owner of Fall Prevention Alarms Inc. in Southbridge, said he would like to expand his company, which makes “sensor pads” that send alarms when a patient unexpectedly gets out of bed or leaves a chair. But many of Keith’s clients are nursing homes that are reducing spending due to sequester cuts in Medicare reimbursements, which cover some types of senior care.
“The nursing homes are all uneasy these days,” said Keith, whose firm employs seven people. “They don’t know which direction [federal spending] will take.”
Naomi Prendergast, the chief executive of D’Youville Life and Wellness Community, which operates two senior care facilities in Lowell, said her nonprofit company has lost hundreds of thousands of dollars in Medicare reimbursements due to the automatic budget cuts. She said she dreads another one of the knock-down, drag-out budget fights that have become the norm in Washington.
“How are we supposed to make strategic business decisions?” asked Prendergast “We need more stability and certainty.”
Chris Shedd would also like more certainty. The owner of Mortgage Resources Inc., a Wellesley mortgage brokerage, Shedd said calls to his business dropped noticeably over the past two weeks as potential homebuyers delayed applying for mortgages until the debt-ceiling showdown was resolved. Many economists predicted that failure to raise the federal borrowing limit would lead to a US default, financial crisis, and recession.
“The more uncertainty, the less confidence there is in people to want to buy a home,” said Shedd. “Personally, I see us heading in the same direction in Washington, and that’s not good for the economy.”
Robert Reynolds, chief executive of Boston’s Putnam Investments, said he’s discouraged by events in Washington. Years of gridlock over the nation’s budget and economic policies, both short- and long-term, is dampening what could be a much brighter period for the economy, Reynolds said.
While he urges investors to “look through” this latest period of market swings and avoid making rash decisions with their money, he also acknowledges this is a time of anxiety for investors large and small.
“It’s horrible for the economy. You have businesses not knowing what the world is going to look like — not hiring, not making investments,” Reynolds said. “I am by nature an optimistic person. But I would say it’s being challenged at this point.’’