Will Victory Bring Prosperity?

by Dennis Jacobe, PhD
Chief Economist, The Gallup Organization

Last Friday, we found out that the economy lost more than 108,000 jobs in March, on top of the 357,000 jobs lost in February. This report primarily reflects job losses that took place prior to the start of the war with Iraq. Anecdotal evidence (e.g., the layoffs in the airline industry and the reduced number of flights since the war began) suggests that the job situation got even worse after the war got going.

Considering this awful job situation, as well as data showing that both the manufacturing and service sectors are shrinking, it is somewhat surprising that only 41% of the public told Gallup in a March 24-25 poll* that it thinks the United States is now experiencing a recession. These results are particularly surprising when you consider that just over a year ago, in response to a March 2002 poll, 56% of Americans told Gallup they thought the United States was in a recession.

Is the U.S. economy heading for the much-ridiculed possibility of a "double-dip" recession? Or is this just a war-related slowdown? More importantly, will victory in Iraq bring prosperity in the United States?

The Job Situation Was Predictable

In a March 3-5 Gallup Poll**, four in five Americans (81%) said that it was a bad time to find a quality job, the highest percentage since Gallup began asking this question in August 2001. More importantly, this March 2003 number showed no improvement from the similarly high percentage of Americans who have been saying it is a bad time to find a job since December 2002.

Of course, individuals who are employed or looking for work generally know even more about conditions in the job market than other Americans do. This group held the same view as the public at large in early March: 82% of Americans who are employed or looking for work told Gallup that it was a bad time to find job. Again, this is the highest percentage to date.

Victory Brings Opportunity

Job losses are a lagging indicator of economic conditions, and recent job loss reports confirm the U.S. economy's growing weakness prior to the war with Iraq. Given the war's negative impact on the economy in the short-term, there is little doubt that we are now in a recession, whether government data reflect one or not.

But it is essential that we recognize that it is not just the war that has weakened the economy. Three-fourths of employees say that it is the state of the economy, not the war with Iraq, that is hurting their companies, and 34% say that their companies have experienced a hiring freeze at some time during the past year (see "Start of Iraq War Boosts Employee Optimism" in Related Items). The underlying economy is very weak.

As a result, victory in Iraq will not be enough to bring economic prosperity -- it will only bring an opportunity for economic recovery. The post-victory rally effect will create conditions -- such as a surge in optimism -- that are conducive to increased consumer and business spending. But optimism alone is not enough.

Monetary policy-makers should lower interest rates as soon as victory in Iraq is declared, even if the war ends before their next meeting in May. In addition, Congress needs to pass an economic stimulus program regardless of the war costs. A strong fiscal and monetary stimulus, along with a decisive military victory, is needed to jump-start the U.S. economy.

Not enough was done to stimulate the economy following Sept. 11, 2001, and the promised economic recovery never took hold. This time, everything possible should be done to promote recovery, or economic failure -- rather than victory in Iraq -- is most likely to dominate the political arena during next year's elections.

*Results are based on telephone interviews with 1,008 national adults, aged 18 and older, conducted March 24-25, 2003. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±3%.

**Results are based on telephone interviews with 1,003 national adults, aged 18 and older, conducted March 3-5, 2003. For results based on the total sample of national adults, one can say with 95% confidence that the maximum margin of sampling error is ±3%.

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