THE BLOG
06/28/2013 07:43 am ET | Updated Aug 28, 2013

Four Months Later... How Bad Was the Sequester, Really?

Ask any business owner how they think the economy is doing and you'll probably hear "not bad." Not bad indeed. Especially over the past few months.

The construction industry is certainly recovering: housing starts were up 6.8% in May, builder confidence reached its highest level since 2006 and mortgage applications continue to rise. Construction spending increased in April and the Architecture Billings Index has strongly rebounded. Other sectors are doing pretty good too: retail sales have steadily increased, auto sales roared back in May and Ford's sales hit their highest levels since 2007. The financial sector is now bigger and more profitable than ever and the service sector continues to pick up. Durable goods orders are up and consumer confidence is "soaring."

More good news: household financial health is looking better and people are spending more on weddings. Economic conditions in the New York, Philadelphia, Texas and Chicago regions are doing well, improving and even "surging". Our nation's finances continue to get better and recently credit service Standard & Poor's upgraded its outlook on our government debt. A survey from Capital One Bank says that small business conditions are improving and another survey from Citibank reveals a three-year high in owners' view of business conditions. Prominent economists like this one are now predicting our economic growth to be between 3 to 3.5%. Not bad.

Of course things could be better. Just this week it was announced the GDP growth has slowed more than expected. And for every good piece of news, we can find something to offset. But the people I speak with - my clients, my readers, hundreds and hundreds of business owners, all say that the economy is getting better. And that's great news. Particularly in light of next week's anniversaries.

Anniversaries? Sure. You remember - next week we celebrate the 237th year of our country's founding. And no one back then thought our country would last a decade, let alone more than two centuries. And speaking of predictions, next week will also be the four month anniversary of the dreaded "sequester." Remember that? Back on March 1 the government, by its own decree, forced itself to cut $85 billion from its budget this year and the outlook was scary!

At the time, the president warned of dire consequences. Economist Scott Sumner explained how we got into the mess and another economist detailed just how big the pending automatic sequestration cuts would be. Salon's Alex Seitz-Wald wrote a hysterical analysis explaining why we should all be afraid. The Washington Post's Jim Tankersley said the sequester would sock an already vulnerable economy, and even before its impact was fully felt, some said the cuts were already hurting small businesses. Devastation would reign! Airplanes would fall out of the sky. The poor would die of starvation. The sick would get sicker. The Blackhawks would win the Stanley Cup. None of that happened. Well, almost.
But it's no joke. And let's be clear: people were affected by sequestration. And they still are.

Jared Bernstein has done a great job tracking the effects of the sequester in his ongoing "sequester watch." What you learn from reading his blog is that the sequester has make its impact in many ways. We all know that air traffic was affected during the first few weeks of March until Congress took action. But did you also know that the budget cuts are "gutting" Indian education, "stalling" Meals on Wheels programs, "hitting" work-study funds and "hurting" medical research? Did you not realize that the budget for our national weather service has been "slashed", our inspectors general have been "weakened" and other scientific research has been "imperiled?" Cities, like my own, are feeling its effects. Even the quality of life on our nation's military bases has been impacted! The list goes on.

And so do we. And so does the economy. Business owners like me know this.

We are not villains. We don't like to see people affected by budget cuts. No one wants to see decreases in medical and scientific research. We all want the best education possible for our children. It's not pleasant to see great programs like Meals on Wheels and Head Start (another victim of the sequester) stalled or even discontinued. Of course we want our military to have the best quality of life possible. In fact, we all want the best quality of life possible. We have a long list of things we want. We want the poor and disabled to receive as much help as needed. We want our health services to have the right amount of resources. We don't like to see people furloughed or even losing their jobs due to cutbacks. But unfortunately, we can't have it all.

There's a bigger picture. And business people know this. There's the need to reduce our deficits and the latest Congressional Budget Office analysis shows that sequestration, both implemented and planned, along with rising tax receipts and (most importantly) an improving economy is reducing our annual deficits...at least temporarily. Many people I know (myself included) believe that deficits should be lower and more significant steps should be taken to bring our national debt under control. Even if it does impact economic growth. For now, though, it hasn't.

Because for too many years we've lived under the illusion that our debts can grow without check. And that scares the business community. We understand that making budget cuts are necessary for maintaining fiscal health. We do this stuff all the time in our own companies. We realize that pulling back resources may also impact our own growth and we hate that. But we know it's a necessity if we want to stay in business for the long term. So smart business people cut expenses, lay off good and hardworking employees, reduce investments and work to maintain financial stability even when they know that they will face painful and economically difficult consequences. Because it's what's best for the long term.

And that's why, despite all the dire predictions and gloomy forecasts, the sequester has not had the negative impact on the economy that so many people predicted. In fact, I believe our March 1st sequestration has had the opposite effect: a positive impact. It is comforting to most in the business community that our government still has the discipline and self-control to actually go through with the cuts that they for so long threatened. It is comforting to know that our legislative branch can stand up in the face of withering criticism and dire warnings from the media and even the president to take the action needed to keep our government's finances from completely going off the rails. And it is encouraging to see the economy respond: more housing, increased investments, higher sales, more stability, increased growth, even a 4% rise in the Dow since March 1st.

Our economy continues to improve. Our business confidence is getting better. It's due to many factors (let's not forget the Fed's stimulus), and sequestration is just one of them. Too much austerity can be a bad thing. But so far so good. So let's hope this little bit of belt tightening continues. It's painful. But it's working. Just ask business people. Just look at the data.

A version of this blog appeared in Inc.com.