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Uncertainty has Mass. firms wary of hiring, expanding

By Megan Woolhouse
Globe Staff / July 26, 2011

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Bill Weissman said sales at his Fitchburg furniture-making company have been so strong this year that he considered buying new equipment and hiring new workers. But Weissman said he is “worried sick’’ that events in Washington will harm the stock market and an already fragile economy, so he is putting off expansion plans.

“It’s just got me to the point where I’m not looking to take any further risk,’’ Weissman said of the debt-ceiling debate. “At least not until I can see some stability on the horizon.’’

The political crisis in Washington has begun to affect business decisions across a wide array of Massachusetts employers, from manufacturers to real estate firms to high-tech companies. Still cautious from the last recession, many business owners worry that government leaders will be unable to reach an agreement, while others are concerned about exactly the opposite: that any agreement will invariably include spending cuts and weaken an already lackluster recovery.

The result could be even more caution among businesses, and even slower growth for the state and national economies.

“This only heightens the level of uncertainty,’’ said Northeastern University economics professor Alan Clayton-Matthews of the business climate. “Uncertainty leads to lenders being less willing to lend, investors being less willing to invest, and businesses being less willing to expand.’’

Lawmakers in Washington have been trying for weeks to craft a deficit-reduction package to win congressional support for raising the nation’s debt limit. If they fail to raise the limit by Aug. 2, the government would lose its authority to continue borrowing to meet its obligations and default, possibly provoking an economic crisis.

Stalled negotiations in Washington led to a recent slip in the dollar’s value against other currencies, while stocks declined yesterday. The Dow Jones industrial average fell 88 points to close at 12,593.

Gold, considered a safe haven for investors in risky times, rose to a record high yesterday of more than $1,600 a troy ounce in New York.

Despite yesterday’s decline, markets still seem to be betting that policy makers will reach a deal before the deadline. Investors continue to buy Treasuries, and their interest rates remain low, a sign that most buyers still see little risk in them. But fears are beginning to surface.

Mortgage rates, which are closely linked to Treasury rates, have also remained steady, but Amy Slotnick, vice president of Fairway Independent Mortgage Corp. in Needham, said there is industry apprehension that rates will spike as the threat of default nears.

Slotnick said she met with a customer yesterday who decided to refinance a home and lock in a rate due to concerns over the government inaction.

“It was somebody who had been on the fence, but they said let’s pull the trigger now,’’ Slotnick said. “Next week, rates could look entirely different.’’

The deadlock has made businessmen like Weissman, the Fitchburg furniture maker, antsy. A portion of his business depends on government contracts to build library bookshelves and desks used by state colleges and universities. Without an increase in the debt limit, such contracts and other federal payments could stop.

In a letter urging congressional leaders to raise the debt ceiling, Governor Deval Patrick said state residents and institutions rely on more than $200 million in federal reimbursements a week to pay for programs ranging from Medicaid to food assistance.

A default “for even a short period of time could create a serious state cash-flow issue,’’ Patrick wrote. “State governments are still reeling from the recession and can ill afford to bear the brunt of such a preventable crisis.’’

Hospitals, which depend heavily on federal payments through Medicare, the health insurance program for the elderly, and Medicaid, the program for the poor, are bracing for government cuts. Many across the state already are struggling financially with high costs and declining reimbursements.

“The hospitals feel like they’re on a train track with lights coming at them,’’ said Lynn Nicholas, president of the Massachusetts Hospital Association. “It seems certain that Medicare cuts are forthcoming. The hospitals that have a small amount of cash on hand and are already operating in the red would not be able to withstand any cessation of their Medicare funding.

“There is a great deal of fear, and there’s also anger at the failure of leadership,’’ she said.

Massachusetts medical device companies, meanwhile, worry about how health care providers will be reimbursed by Medicare and Medicaid for tests and procedures using their equipment. If the US government defaults on its debt and is forced to curtail such payments - or if such payments are slashed in a deal to avert a default - medical device makers could see sales fall.

“If Medicare payments are cut, that would be an immediate concern for our companies,’’ said Thomas J. Sommer, president of the Massachusetts Medical Device Industry Council, a trade group. “That’s what our people are keeping tabs on.’’

And while many business owners are watching, they are also waiting.

Steven Kokinos, chief executive of Thinking Phone Networks, which offers advanced phone networks to a variety of companies nationwide, said he would like to hire 20 new employees by the end of this year.

His customer base has grown by 70 percent since the start of this year and the company has needed to expand its Cambridge office space.

But he is taking a wait-and-see approach to hiring because he is unsure how budget cutbacks could affect growth.

“If companies start to get more cautious, we’ll have to do the same,’’ he said.

Kokinos said it is hard to discern whether the debate in Washington is extreme political posturing or something more dire.

“Frankly, I think things have devolved in the last few days,’’ he said. “It’s frustrating to watch. I almost don’t want to.’’

Globe reporter Robert Weisman contributed to this report. Megan Woolhouse can be reached at mwoolhouse@globe.com.