Success in war has yet to revive economy

By Todd Mason
Knight Ridder News Service

Robert Kendrick, at Anderson's television store in Santa Clara, Calif., watches news about the fall of Baghdad. Fixated on news coverage of the war in Iraq and worried about their jobs, shoppers stayed away from the malls in March. Associated Press

"To get things growing again, if we are to avoid a double-dip recession, we need to see businesses spending," said Craig Thomas, senior economist at Economy.com, of West Chester, Pa.

"The psychology has got to improve across the board, by business and consumers," said Richard Moody, an economist at PNC Financial Services Group Inc. in Pittsburgh.

Many people have suggested the economy might begin to revive once the war in Iraq was over. But this week's unexpectedly quick military success has not been followed by an equally quick surge in optimism.

It's too soon to see businesses and consumers buying or investing, economists said, although they see modest growth ahead. With scant signs of risk-taking in either camp, the economic news is decidedly gloomier than the war news.

A stream of grim economic reports doesn't help, said William Stull, chairman of the economics department at Temple University.

"There was so much emphasis on the war," Stull said. "Now that we have won a fairly quick and easy victory, what we're seeing is a lot of gloomy statistics."

Fixated on news of the war in Iraq and worried about their jobs, shoppers avoided the malls in March, giving the nation's retailers another month of disappointing sales. Unseasonably cool weather in parts of the country and a late Easter also curtailed demand.

Department stores, particularly May Department Stores Inc., again fared badly, announcing sharp declines in sales from stores open at least a year. But even usually strong Wal-Mart Stores Inc. struggled, posting its weakest increase since December 2000.

Initial jobless claims fell by 38,000 last week although they remain at worrisome levels, above the 400,000 level for the eighth consecutive week. Retail sales fell as well. While sales at existing Wal-Mart stores rose 0.7 percent in March, that was its smallest gain in two years.

The stock market drifted yesterday despite encouraging news on the warfront. Investors are paying less attention to the twists and turns in Iraq, said John Silvia, chief economist of Wachovia Corp.

"The flight to safety has pretty much worked out," he said referring to the transfer of investment activity to bonds from stocks. "Investors will find a new balance."

Meanwhile, the Business Roundtable, a group representing chief executives reported that nearly half of the 120 corporations it surveyed last month expect to cut jobs while only 9 percent expect to hire.

Local businesses are equally cautious, said Joe Meterchick, a senior vice president at PNC Bank in charge of corporate banking.

"I think they see better times ahead," he said. "The question is how soon they will be comfortable taking risks."

Real estate executives see similar caution. "There are a lot of people sitting on the sidelines waiting for a sign," said John Derham, senior managing director of Cushman & Wakefield of Pennsylvania, a commercial brokerage firm.

The office market is slower than industrial properties, said William Hankowsky, chief executive of Liberty Property Trust, a major property owner based in Malvern, Pa.

"The office side is more problematic because it involves hiring," he said. "Businesses are reluctant to hire people if they're sure they keep them."

Economy.com's Thomas also hears gloom from the corporate clients who buy the firm's reports. "They say 'Why would anyone create a job, take out a loan, lease space?' " he said.

Thomas thinks they are wrong to be pessimistic. "Inventories are ridiculously low. Capital is available. Banks are willing to make loans," he said.

Meterchick, the PNC banker, agreed. "I do believe there is pent-up demand. At some point, business owners will be motivated to expand."

The Associated Press contributed to this report.