Washington’s budget problems weighed on Kansas City business leaders Monday morning as they analyzed the area’s economic future.
The annual forecast for the local economy took place with a possible federal shutdown only hours away.
Speaker Bob Litan, formerly of the Ewing Marion Kauffman Foundation, told the audience at the Greater Kansas City Chamber of Commerce event that they have reason to worry.
More than half the federal spending that a shutdown would stop goes through federal contracts. It means the businesses that contract with Washington won’t get paid, and the subcontractors working for them won’t get paid.
“That’s the way you get a substantial impact on the economy,” said Litan, who is director of research for Bloomberg Government, an analytics arm of the news organization.
Frank Lenk, whose Kansas City economic forecast highlighted the chamber breakfast, likened the fiscal impasse in Congress to a brake on the economy.
Others have tried to put a number on that potential slowdown.
Moody’s Analytics economist Mark Zandi told Bloomberg News last week that a three- or four-week shutdown could rob 1.4 percentage points from the economy’s growth in the final months of the year, which he estimates at only 2.3 percent without a federal shutdown.
The economy stands to suffer worse economic damage should Congress fail to deal with the debt ceiling, Monday’s speakers said.
The U.S. Treasury expects to run out of borrowing capacity in mid-October, forcing a possible default on government debt or halt in federal payments broadly.
“As bad as a shutdown is going to be, and it’ll be serious, the debt ceiling is the bigger fight,” Lenk said.
Both political battles already have had an economic impact, said Chris Kuehl, an economist with Armada Corporate Intelligence who spoke at the breakfast.
“Business has become cautious again,” Kuehl said.
Although business leaders deal with business uncertainties all the time, the Washington impasse amounts to changing the rules of the game, Kuehl said. Will it end in more taxes, elimination or delays of government programs?
“The cash that you might have used to buy a new machine, that you might have used to hire somebody, that you might have used to expand a new territory, well it’s now in a contingency fund,” Kuehl said.
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