Impact Of Government Shutdown On Economy Seen As Minor,Reversable

Oct 1, 2013

The Massachusetts economy is already feeling the impact of  federal budget cuts.  Leading regional economists warn the federal government shutdown and the looming debt ceiling crisis could compound the problems.

The Massachusetts economy relies heavily on federal dollars that flow into health care, defense and higher education –all key sectors of the state’s innovation economy. The federal funding has been reduced as a result of the across-the-board federal budget sequestration.  Pressure is now mounting on these industries to cut expenses, according to Robert Nakosteen, a professor of economics at UMass Amherst

Nakosteen, is executive editor of  MassBenchmarks, a journal that tracks the Massachusetts economy. He said there is anecdotal evidence companies that rely on federal contracts protected employees in the hope the sequester would be reversed, or modified, but that prospect now appears unlikely.

The partial shutdown of the federal government that began this week will undermine confidence in the economy.

Nakosteen says a far more serious hit to the economy will occur if Congress fails to raise the federal debt ceiling later this month.

The Massachusetts economy which had outpaced the national economy in the years following the Great Recession has slowed considerably.  The MassBenchmarks Current Economic Index release at the end of July had the Massachusetts economy growing at 0.8 percent in the second quarter  of 2013.  In contrast, the U.S. economy grew at an annual rate of 1.7 percent during the same period.

The state’s unemployment rate has been rising, even as the national rate has been falling.

There were 20 percent fewer job postings by employers in August at the Future Works  Career Center in Springfield, according to the center’s business manager Kevin Lynn.  He says job seekers are showing signs of frustration.

Economists, who are members of the MassBenchmarks Editorial Board, do point out some bright spots in a newly released analysis.  They note the state’s housing market is recovering with home prices, building permits, and construction employment all increasing.  Some growth has been detected in state export activity.