Thursday, February 6, 2003

War jitters not helping economy


Some firms freeze hiring

By Martin Crutsinger
The Associated Press

WASHINGTON - Worried about a possible war, Wall Street has been in a funk this year, and the news on Main Street hasn't been any better. Business executives are freezing new spending and hiring, fearful of big commitments in the face of so much uncertainty.

Some analysts think that the national anxiety, heightened by the loss last weekend of the space shuttle Columbia, could be enough to derail the feeble recovery and throw the country back into recession.

"The probability of a double-dip recession has certainly risen," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "The economy is still mired in a pretty soft patch, and we have not made it to firmer ground."

"Soft patch" was the phrase Federal Reserve Chairman Alan Greenspan began using last fall to describe a significant slowdown in economic growth.

The economy, which had been growing at a solid 4 percent rate in the summer, screeched to a near halt during the final three months of the year, managing to eke out a tiny 0.7 percent growth rate.

To buy some insurance against a possible double-dip recession, the Federal Reserve in November cut interest rates by a bigger-than-expected half-point, pushing the overnight borrowing cost for banks down to a 41-year low of 1.25 percent.

But so far, the extra boost from lower interest rates has not been enough to jump-start the economy.

Unemployment has been stuck at an eight-year high of 6 percent as businesses have laid off almost 200,000 workers in the past two months.

Many analysts think that when the government reports the January unemployment figure Friday, it will show that businesses did add a small number of workers last month but not enough to show an improvement in the 6 percent jobless rate. In fact, they are forecasting that unemployment will hit 6.5 percent or even higher by this summer.

"The economy is very fragile right now," said Mark Zandi, chief economist at Economy.com. "Businesses are queasy. They are not investing or hiring, and consumer confidence is still weakening. Any little thing that went wrong could push us back into recession."

The concern is that more bad news - such as a U.S. invasion of Iraq that took an unexpected turn for the worse or a new terrorist attack in the United States - could be the final blow that would guarantee another recession.

"The real risk is the war," said David Wyss, chief economist at Standard & Poor's in New York. "It can go bad in all sorts of ways, and that could push us into a double-dip."



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