Shutdown won’t hit the economy right away, but when it does, here’s what that will look like

The Post's Reid Wilson talks with Nia-Malika Henderson about which state is being hit the hardest by the government shutdown. (The Washington Post)

If you don’t work for the federal government, evidence suggests you’re not yet feeling a big economic hit from this week’s shutdown. But the longer it persists, the more the shutdown will reverberate across the economy, dampening consumer spending, gumming up the housing market and unleashing a new wave of disgruntled job seekers.

The first signs of major economic distress should crop up here in the Washington region, which depends more on federal employment and contracting than any major metropolitan area in the country. That’s not likely to happen until furloughed workers start pulling back on spending to prepare for one or more full lost paychecks.

Anecdotes from across the region suggest that is not yet the case — that idled workers are mostly behaving as if the shutdown will end soon. Restaurants near large clusters of government employees reported little drop-off in activity this week.

In Chantilly, restaurants near the National Reconnaissance Office — an intelligence agency — were doing brisk business during the Tuesday lunch hour.

Kirby Black, general manager of Eggspectation, said more customers appeared to be coming in than usual. “My bartender said that he’s never sold so much whiskey before 9 a.m.,” he said. “We’re kind of hoping [a shutdown] lasts if it keeps on like this.”

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Data analysts at Bright, which connects online job-seekers to job openings, said this week that they have seen no large recent increase in employment applications from the D.C. area.

Analysts at Elance, a site that connects freelance workers to employers, also said they saw no spikes in D.C. or Virginia residents looking for work in the past week. They expect that to change soon, said Lauren Schulte, Elance’s director of marketing communications, as workers try to “hedge against negative economic impact.”

That impact will increase as the shutdown persists. Close to 800,000 federal workers have been sent home without drawing pay, and an additional 1.3 million workers could see their paychecks delayed. In a research note Tuesday, J.P. Morgan analysts estimated that federal furloughs will reduce national income by a total of $1.3 billion per week.

Wider effects could follow soon. The Department of Veterans Affairs has said it will run out of money to pay disability claims or make pension payments for up to 3.6 million veterans if the shutdown lasts for more than two or three weeks. The Small Business Association has stopped issuing new loan guarantees, except for those relating to natural disasters.

Federal contractors appear to be keeping most of their employees on the payroll in the early days but warn that could change in time.

At Falls Church-based Acentia, workers who are not needed by government agencies are going through corporate training, working on other company initiatives or taking paid time off. The company allows employees to go beyond their earned time off; Acentia workers can go negative on their paid-time-off balance, for up to 80 hours, said Todd Stottlemyer, the company’s chief executive.

David F. Melcher, chief executive of McLean-based defense contractor Exelis, said companies will eventually start to suffer as contract payments are not made, workers remain unable to get into federal facilities and contracts that companies are pursuing do not get awarded on time.

Contractor pressure could push lawmakers to end the shutdown, said Stan Collender, a former congressional staffer who is now a budget expert at Qorvis.

“If you look at the last shutdown,” he said, “what happened after about a week was that anyone who did business with the government — contractors, subcontractors — realized this is really hurting. Contractors started announcing they were going to lay off people. And that’s when it turned real. There wasn’t a market reaction — there was a business reaction.”

One market that figures to react the longer this continues: real estate. The longer the shutdown, the bigger the odds of a chilling effect on home sales, particularly in the Washington area, said Stan Humphries, chief economist at the online real estate site Zillow.

If prospective sellers are worried about furloughs keeping buyers at home, he said, “you’ll start to see them pull their homes off the market rather than let them get stale.”

Marjorie Censer and Brad Plumer contributed to this report.

Jim Tankersley is the editor of Storyline, where he explains complex public policies and illuminates their human impact.
Antonio covers government, politics and other regional issues in Fairfax County. He worked in Los Angeles, New York and Chicago before joining the Post in September of 2013.
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