National economy on the brink

Published 12:00 am Thursday, January 23, 2003

Though some economic data shows the possibility of a turnaround, a Troy State University professor said more hard times may be ahead - at least in the short term.

Dr. Larry Lovick, Adams-Bibby Chair of Free Enterprise at Troy State, said the looming war in Iraq could undercut positive signals from short-term indicators. Though Lovick said he forecasts economic growth over the long-term, such predictions rely on the assumption that the war is a brief one.

&uot;I'd look for some gradual improvement in the summer and last quarter and into 2004,&uot; he said, calling the war and the possibility of another terrorist attack &uot;wild cards,&uot; that could skew the entire framework.

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News of a recovery seemed to be a possibility when a group called The Conference Board released some uplifting numbers. According to the group, a research and forecasting collection of industrial interests, a 0.1 increase in the Index of Leading Economic Indicators could mean bright times are on the horizon. More housing permits and new orders for consumer goods helped produce the one-tenth of a percentage point change.

&uot;The economic slowdown that we've been through was called by substantial decreases in business investment and new equipment,&uot; Lovick said. &uot;Most slowdowns are consumer led. This was business led. One reason is that business probably spent too much on new equipment in the 1990s. Some was done in anticipation of Y2K, which never amounted to much. Because there was some excessive spending there was a slowdown.&uot;

However, other economic data is not as rosy and may point towards more hard times ahead.

The public is skeptical about whether President Bush’s new economic stimulus plan will do much to help growth in the economy, according to a new poll.

Only a third of those surveyed in a new NBC and Wall Street Journal poll expect the stimulus plan will be fairly effective or very effective at helping the economy. Another four in 10 said it could be &uot;somewhat effective.&uot;

On Jan. 7 Bush unveiled a new $674 billion, 10-year tax cut and economic stimulus program to ward off attacks that he is not doing enough to jump-start growth.

Lovick said tax cuts historically have boosted investments and spending.

&uot;Over the longer haul, tax cuts generally will cause more investment and more entrepenurial activity and more economic growth. There have been a number of studies between economic freedom and economic well being,&uot; he said.

Still, the number of Americans filing new claims for unemployment benefits rose by 18,000 last week, according to new numbers from the Department of Labor.

The weak economy is still leading companies to hold down costs by laying off workers. 381,000 newly laid off workers filed for jobless benefits last week compared to a revised figure of 363,000 the previous week.

Interest rates, which are at a 41-year low, have caused a boom in housing construction and sales, but still, the specter of war looms.

&uot;If there's a war, it's expected to be short and while energy prices might go up in the short run, they'll probably come back down,&uot; Lovick said.

Joseph Stiglitz, professor of economics and finance at Columbia is a Nobel-prize winning economist who has written about the potential effects of attacking Iraq.

&uot;Whichever way one looks at it, the economic effects of war with Iraq will not be good. Markets loathe uncertainty and volatility. War, and anticipation of war, bring both. We should be prepared for them,&uot; wrote the former chief economist of the World Bank in a recent column.

Lovick agreed with the basic premise that the war won't be a good thing for the health of the economy, but said the effect could be a spate of temporary unpleasantness.

&uot;The potential for war has created uncertainty in the stock markets and some of that comes from the large corporations like Enron and WorldCom, as well. A few people will hopefully get some long jail sentences for that,&uot; he said. &uot;That's caused people to wonder how accurate some of the financial data might be. Probably once something happens, assuming it is a quick war, once that's over, consumer confidence will increase. Initially, it's going to cause a lot of anxiety, but if it's a short term effect, it may be only a matter of a few weeks.&uot;

Stephen Stetson can be reached at stephen.stetson