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'Sequester' harm to economy? Maybe for longer than you think.


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Other economists also say the sequester will affect the economy's productive capacity -- not just withdraw some "spending money" from the pockets of consumers or corporations.

"Fewer air traffic controllers imply a reduction in flights, both passenger and freight, [and longer airport delays]," writes Paul Kasriel, an economist who publishes The Econtrarian blog. "This ... will slow the wheels of commerce, i.e., slow real GDP growth."

For some individuals and industries, the sequester's effects may be severe. Examples would be a low-income worker who loses access to child-care subsidies, or a defense contractor asked to put a big project on hold.

Virginia and Maryland, which have lots of federal or defense-contractor employment, would take big hits, compared with other states.

But the larger impact on GDP remains uncertain.

Financial markets haven't appeared concerned as the clock has ticked toward the March 1 deadline. The Dow Jones Industrial Average has continued to hover near 14000.

In part, that may reflect expectations that the sequester won't be in place for long before Congress and President Obama come up a fiscal Plan B.

At the same time, many economists say that it's a bad time to be throwing wrenches into the economic gears. The unemployment rate remains high, US workers were hit with a payroll tax hike, as of January. And the implementation of President Obama's health-care reforms looms as another source of employer and consumer uncertainty.

What many economists bank on is that strength in the private sector – with improvements in home values and the job market – will more than offset any negative impacts from federal cuts.

One forecasting firm, Macroeconomic Advisers, says a fully implemented sequester would shave 0.7 percentage points from economic growth. Another, IHS Global Insight, pegs the fallout at closer to 0.3 percent.


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