Region’s economy looking up, but budget worries lurk

From The Frederick News-Post:

The Washington region’s economy is growing stronger, but potential federal budget issues in September and October could bring the progress to a halt, according to a report from one of the region’s leading economists.

The region appears to have recovered from some economic uneasiness in the first quarter of the year, according to the report from The Stephen S. Fuller Institute for Research on the Washington Region’s Economic Future, based at George Mason University in Virginia.

Consumer confidence increased 21.6 percent from June 2016, while sales of non-durable goods such as food and clothing were up 2.4 percent in the same time frame, the fourth straight month of growth, according to the Fuller Institute’s economic report for August.

Overall, the region’s economic performance in June showed growth for the 39th straight month.

“While the first half of 2017 showed some unevenness, especially with March’s relative small gain, the region’s economy appears to have weathered the change in Administration’s [sic] and the initial federal budget uncertainty without permanent damage,” the report said.

And while the region’s job growth through July has been about 25 percent better than expected, averaging 57,600 net new jobs, those jobs are for the most part lower-paying ones than the region has traditionally produced.

The region has seen strong growth in the leisure and hospitality and education and health services fields, but fewer of the “white collar” professional and business services jobs that have been associated with the region in the past, said Jeannette Chapman, deputy director and senior research associate at the Fuller Institute.

But despite the overall economic good news, the potential of a government shutdown over the federal budget at the end of the month or a fight over the raising of the federal debt limit could undo some of the economic progress in the area.

Congress will have to act by the end of September to provide money to fund the government and raise the country’s debt limit, with President Donald Trump suggesting that he could shut down the government if the budget doesn’t include money to fund his plans for a wall on the southern border.

At a rally on Aug. 22 in Phoenix, Trump told the crowd, “If we have to close down our government, we’re building that wall.”

The Washington region’s economic growth that began in early 2010 hit a major disruption in 2013 when a disagreement over the budget shut down the federal government from Oct. 1 through Oct. 16, and “what happens on or about October 1st will be telling,” the Fuller Institute report warns.

The last week of September will be important for the local economy, but how long a potential shutdown lasts will tell more, Chapman said.

The region’s strong growth has provided a great base to build on, but the budget uncertainty has added volatility to the economic outlook, she said.

If there is a shutdown, its ultimate impact might depend on whether people see it as a signal of the way things will be in the future, or as a temporary “blip,” she said.

A shutdown would definitely have an impact on Frederick County’s economy, said Helen Propheter, head of the county’s Office of Economic Development.

The county has many households with two adults who are government workers, she said.

When household budgets are unpredictable, people cut back on non-essential spending such as shopping and restaurants, she said.

A variety of the Frederick County Chamber of Commerce’s members have contracts with the federal government, and a shutdown would create instability for many of their workers, said the chamber’s president, Elizabeth Cromwell.

“Aside from funding hiccups, another large concern would be losing hired talent to the private sector due to the economic uncertainty of the length of shutdown,” Cromwell wrote in an email.

Several federal shutdowns in the past have helped economists be able to evaluate the chilling effect they can have on Maryland’s economy, said Anirban Basu, an economist and CEO of the Sage Policy Group in Baltimore.

“We’re home to a lot of federal families,” Basu said.

With employees not getting paychecks, the impact on spending would be immediate, he said.

But that impact could be lessened by the fact that many federal workers are reasonably well-paid and could be able to spend out of their savings, knowing that the government will eventually reopen and they’ll likely get back pay for the time they missed.

Because of the psychological effect of knowing that the government has been shut down in the past, federal workers “may have a tendency to put more money away for a rainy day,” Basu said.

While that could slow local economic growth, it can also have a benefit in that many Americans don’t save enough, he said.

Basu said despite the uncertainty, many federal workers should be able to ride out the storm of a potential shutdown without having much of an impact on the region’s economy, due to the nature of past cases.

“The good news is that these shutdowns tend to be quite brief,” he said.