War Drums Aren't Alone In Rattling Economy

By Charlie Cook
© National Journal Group Inc.

February 1, 2003

This column was originally featured on National Journal on February 1, 2003.

How disheartening it must have been for the president to wake up on the day he was to deliver an incredibly important State of the Union address and to hear immediately that the

Conference Board's Consumer Confidence rating had just fallen to a nine-year low. But ever since Republicans did unexpectedly well in the November 5 midterm elections, they've heard a lot of bad news.

The hottest debate in political circles is over the extent to which the sluggish economy and stock market can be attributed to uncertainty about impending war with Iraq, as opposed to the more systemic economic problems facing this country. Wall Street Journal columnist Alan Murray took the debate public the morning before President Bush's State of the Union address. Murray argued that corporate, consumer, and market nerves about the prospect of war are stunting economic growth. He contends that the U.S. economy cannot return to sound footing until the question of war is resolved.

Murray is almost certainly correct insofar as the stock market is concerned. Uncertainty about the war, rising oil prices, and the prospect of interruptions in oil supplies worry investors, who tend to think about the next few months rather than the distant future. But is war playing as important a role in the decisions of corporations and consumers? With the notable exception of housing, which is almost exclusively driven by interest rates-now at historically low levels-both corporate managers and consumers are in a near-fetal position, holding off on expanding facilities and hiring new employees in the workplace and on spending more at home. Witness the unexpectedly lethargic Christmas sales last year.

Many companies have been posting surprisingly good earnings reports in recent days, but that good news is mostly attributable to cost-cutting, not expanded sales. And the cost-cutting is coming at the expense of the larger economy. More layoffs, shorter hours, delayed purchases, less expansion, and more belt-tightening combine to render these strong earnings reports something of a hollow economic victory.

War with Iraq seems unlikely to begin for at least another month to six weeks. While most Americans hope that a war would be short, clean, and successful-costing a minimal number of lives and dollars-no one knows whether the fighting would last days, weeks, or months, or how long it might take to rebuild Iraq. What's clear is that, unlike in 1991, this war will not be over until Saddam Hussein is either dead or removed from office. Foreign-policy pros point out that it took two weeks for American troops to apprehend Manuel Noriega when they invaded tiny Panama and that that was a country in which the United States started off with major military bases. Iraq is a lot bigger than Panama. All in all, we cannot count on a quick and painless resolution to a war against Iraq.

But even leaving aside questions of war, the U.S. economy is fragile. How quickly the nation is able to recover economically depends in part on psychological factors. Americans have to feel better about the country and its immediate future and about the economy's likelihood of expanding soon before consumers and business executives will loosen their personal and corporate purse strings.

It's difficult to see how Bush's economic or domestic agendas were advanced by Tuesday's address. Like most State of the Union speeches, the domestic half had a laundry-list quality that probably did very little to win more support for his handling of the economy or, for that matter, his prescription drug plan for seniors. When the president turned to Iraq, his delivery improved enormously, and he displayed a fervor that had been noticeably lacking in his discussion of domestic policy. This president is not particularly eloquent, except when his passions are high. And this speech probably reinforced the view that his prime focus is on fighting terrorism and taking down Saddam Hussein.

The instant snapshot polls that we have seen in recent days are fun to read. What will be more important to track, though, is the public's attitude after it has had a chance to digest what the president said and how he said it. It's the buzz around the watercooler or coffeemaker at work, over the back fence at home, and in the supermarket aisles that eventually produces firmer, more-lasting opinions about the president and the direction of the economy and the nation.