Posted on: Monday, March 31, 2003

Economy's woes multiply

By William Sluis
Chicago Tribune

As the armaments of war light up the sky, Americans remain focused on economic problems that were in place before the military conflagration began. The list of concerns includes high energy prices, weak spending for business equipment, a so-so outlook for corporate profits and, worst of all, a job market that is dead in the water.

In all, the nation is faced with an economy that has been unusually slow in freeing itself from the icy grip of winter. There isn't much talk that military action in Iraq will, by itself, provide much stimulus.

Recent reports have shown that manufacturing has slowed and consumer confidence is at a bottom-of-the-barrel level, the lowest in about 10 years.

That brings us to Friday's employment report for March. A month earlier, the economy lost a shocking 308,000 jobs as joblessness rose to 5.8 percent.

Chicago economist Robert Dederick is looking for additional weakness, with the unemployment rate rising to 5.9 percent as the economy sheds another 50,000 positions.

"The labor market is showing signs of continued stress, and there is no evidence yet that it has come alive. Business has remained in a freeze," said Dederick, a consultant to Northern Trust Co.

Recent surveys, he said, show that Americans are complaining that jobs are hard to find. Confidence, already low, has taken a jolt from worries about the war and the latest battlefield bulletins.

"The question now is what will happen on the other side of Iraq," Dederick said. "Will the economic expansion really take hold, and just how fast will activity accelerate? There are no answers yet."

One question mark for the economy is the auto industry, which has seen sales steer off a cliff since the beginning of this year. Extra helpings of costly incentives have been unable to snag buyers, who kept the industry near record volumes for the past two years.

Economist Matthew Ellis expects Tuesday's reports of March car and light truck sales to rev up slightly, to an annual rate of 15.7 million units from 15.4 million a month earlier.

"The domestic carmakers may need to come up with another big round of incentives, because there isn't much pent-up demand," said Ellis, of Wachovia Securities in Charlotte, N.C.

"There are twice as many cars sitting around unsold on dealer lots as there were four months ago, so the carmakers must clear them out to go back to full production," he said.

While sales were percolating until about 10 days ago, when war began in Iraq, they have dipped by about 8 percent in recent days, Ellis said.

"But that's not too bad, because after the terrorist attacks of Sept. 11, 2001, they fell by 30 percent," he said. "The problem for the carmakers is that they simply sold too many cars last year, cutting into current demand."