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Lockdown will be a blip in Boston's vibrant economy

Mario Tama / Getty Images

WATERTOWN, MA - APRIL 19: Onlookers, sheltering in their homes, take pictures as they watch from windows while SWAT team members search for one remaining suspect at a neighboring apartment building on April 19, 2013 in Watertown, Mass.

One of the goals of terrorists is to strike at the economy of their targets. On Friday, the high-profile pursuit of suspects in Monday’s Boston bombing brought a city of 1 million with a normally vigorous economy to near standstill.

After an overnight shootout with two suspects left one of them dead and another on the loose, authorities urged residents to “shelter in place” by staying at home.

Public transportation shut down. Most companies, along with many of the city’s four dozen colleges and universities, were closed. The streets of Boston's financial district, home to mutual fund companies with some $3 billion in assets, were nearly deserted.

"A whole city like this shuts down for the day with amazing economic ramifications," said Larry Peruzzi, who runs a trading desk at Cabrera Capital Markets in downtown Boston.

Beyond the tragic loss of life, the suffering inflicted on those injured in Monday's attack and the emotional toll on Boston's shattered peace of mind, the short-term economic impact of shutting down a city with a $325 billion annual gross domestic product will be substantial. In 2011, the latest data available, the nation’s ninth largest metropolitan economy churned out goods and services worth roughly $37 million an hour, generating wages, consumer spending and investment.

Economists say it’s all but impossible to estimate just how much business will be lost. But while the immediate impact will be severe, the longer-term losses will likely amount to an asterisk on the region’s economic data.

That’s because much of the lost business will be replaced later as Bostonians simply delay spending and make up lost work when the city gets back to business.

In the meantime, the bulk of the money flowing through the city’s economy – some 80 percent – amounts to wages that will likely continue flowing to many workers despite the shutdown.

And, no matter the cause, disasters and emergencies can even bring economic “offsets” that help minimize the damage, according to Joel Naroff, chief economist at Naroff Economic Advisors.

“People have been flown in from all over the country and resources are being bought to bear and spent in Boston,” he said. “Who’s feeding all of the FBI agents and troops? That’s a net addition to economic activity.”

For example, Dunkin' Donuts said on its Facebook feed that its location in Watertown remained open Friday "to serve law enforcement and first responders with free coffee and food." The company said in an emailed statement to NBC News that its franchisees were working with authorities to determine which locations should open.

Since the horrific attack rocked the trade and transit Hub of New England’s economy Monday, those hardest hit have been companies providing services – like food, entertainment and transportation – that represent business that will be lost forever.

Restaurants in the heart of the city’s hotel and shopping district Friday continued to field cancellations, adding to lost business this week after investigators cordoned off several blocks and searched for clues to Monday’s bombing at the finish line of the 117th running of the city’s iconic marathon.

Many sporting events, including the Red Sox night game against the Kansas City Royals, were canceled. Mass transportation within the city was shut down Friday. Amtrak stopped running trains in and out of town. Intercity bus lines suspended service. Logan airport remained open, but airlines were letting customers to change plans without paying a fee.

Those cancelled services represent millions of dollars in lost revenues and wages.  

The Boston bombing will also create a new financial burden for the city from the increased costs of adding more security, especially for public gatherings. That’s money that could otherwise be used to lower taxes, or build infrastructure or invest in research and development.

“There a redistribution of money into security services which are – I hate to put it this way - nonproductive and that doesn’t help give us long-term growth,” said Naroff. “We may have made ourselves safer since 9/11 but we’ve spent an awful lot of money in ways that have not improved the economy.”

As many U.S. cities and towns are still recovering from budget gaps opened up by lower property taxes and cuts in state and federal aid, Boston’s finances are on a solid footing and better able to sustain higher security costs. Departing Mayor Thomas Menino, in his 20th and final budget, has proposed a $2.6 billion spending plan is nearly $140 million higher than last year.

Boston’s vibrant economy is also well positioned for any possible economic aftershocks from the attack, including a possible hit to its large tourism industry. With a growing young and well-educated workforce, the regional economy emerged from the Great Recession earlier and faster than the rest of the country. At 6.0 percent, the city’s unemployment rate is below the national average.

Though tourism generates more than $8 billion a year in revenues, Boston’s economy is well diversified among a broad base. Beyond its large financial services industry and world-class educational institutions, a growing health care industry that includes more than 30 area hospitals is Boston’s largest employer. Even the moribund construction industry, which is still struggling in much of the rest of the country, last year bounced back in Boston to pre-recession levels of more than $3.8 billion.

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Reuters contributed to this report.