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Shutdown’s impact on economy: Minimal, unless it drags on

The U.S. government shutdown won’t dramatically harm business or consumer confidence – unless it drags on for weeks, three economists told the Observer on Tuesday.

But, they said, even a shutdown that ends quickly will have a variety of impacts, from slowing the processing of some mortgage loans to creating uncertainty for companies that rely on government contracts.

Mark Vitner, economist for Wells Fargo Securities

Don’t look for the shutdown to dissuade many consumers from spending, Vitner said. Although it’s not uncommon for wrangling in Washington to affect consumer and business confidence, “typically economic activity doesn’t fall off anywhere near as much as these confidence indices come down.”

“Very few people actually make any decisions based on the government shutdown,” he said. “When we look at what the actual impact’s going to be on the full economy, it’s extremely minimal.”

Still, he said, some sectors could see an immediate impact. For instance, he said, the processing of government-backed home loans, such as those guaranteed by the Federal Housing Administration, could be slowed by the shutdown, affecting the housing market. FHA-backed loans make up about 15 percent of the home-purchase market.

“With mortgages, it’s probably not going to make much of a difference if it’s a day or two,” he said.

But, he said, a weeklong shutdown could clog the processing of loans. “Some deals might fall through.”

A report released Tuesday showed continued strengthening in the Charlotte housing market, as prices rose 7.6 percent in August from a year ago. A slowdown in the process of FHA-backed loans could be a drag on the local housing market.

There could also be delays in the processing of U.S. Department of Agriculture loans, Vitner said. Lags in that process could especially hurt rural areas, which tend to receive such loans, he said. Charlotte-area counties that might feel those effects include Anson, Chester and Lancaster.

Conventional mortgage loans, such as those bought by Fannie Mae and Freddie Mac, aren’t expected to be affected by government workers being furloughed, he said.

But the shutdown could hurt local governments expecting grant dollars, Vitner said, adding that there could be delays in getting those funds.

Stuart Hoffman, economist for PNC Financial Services Group

Hoffman said the impasse that led to the shutdown weighs on business and consumer confidence at a time when confidence is already fragile thanks to uncertainty over the effects of the health care law.

“It isn’t helpful,” he said of the shutdown.

Business confidence has improved from the depths of the recession, he said. But the costs associated with the health care act create questions for small businesses at a time when many owners are troubled about weak sales, he said.

An index that measures optimism among small businesses fell 0.1 point from July to August, according to the National Federation of Independent Business. The report’s results were mixed, showing job-creation plans rising at a level not seen since before the recession but also increasingly negative expectations for improved business conditions.

Hoffman said he doesn’t expect the shutdown to severely harm the economy, “unless it lasts longer than any one ever has lasted.” The shutdown is just a “warm-up act” for the deadline later this month to raise the U.S. debt ceiling, he said. By the time the debt ceiling issue is resolved, the shutdown should be over, he added.

Harry Bowen, economics professor, Queens University of Charlotte

Bowen said the bickering in Washington is making businesses uncertain about the future. As lawmakers continue arguing about the health care act, other important issues are being overlooked, such as those dealing with free trade, he said.

“What’s going to happen to all these other items on the agenda?”

He also said the shutdown could harm businesses that have federal government contracts.

“I may worry that there will be delays in payment or the project itself may be put on hold,” he said.

When businesses are uncertain about the future, he said, they tend to be more conservative in their outlook.

“The range of possible outcomes widens so much that very bad outcomes become more probable,” he said. “It just becomes more difficult to judge what the direction of the future might be.”

Roberts: 704-358-5248; Twitter: @DeonERoberts
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