News > Economy
War? What war?
'Geopolitical uncertainty,' all but forgotten, still weighs on consumer confidence and the economy.
July 17, 2003: 2:53 PM EDT
By Mark Gongloff, CNN/Money Staff Writer

NEW YORK (CNN/Money) - Early this year, economists often warned that "geopolitical uncertainty" -- fancy words meaning "war with Iraq" -- was going to hurt the U.S. economy.

Why are there no such warnings now, when the United States is still embroiled in a guerilla war in Iraq and the world is still full of so much uncertainty?

“ We have an economic recovery that doesn't look like a recovery, and we have a peace that doesn't look like a peace. ”
Robert Brusca
Native American Securities

For one thing, some economists say, U.S. consumers aren't paying quite as much attention to world events as they were during the excruciating build-up to the war in Iraq.

Before the war, it was assumed that consumers -- whose spending makes up more than two-thirds of the economy -- were going to stay glued to their sofas for several weeks watching 24-hour coverage of the war, instead of buying stuff and keeping the economy going.

But now, there has been no wall-to-wall coverage of the U.S. military's daily struggle to bring order to Iraq and neutralize the troublesome remnants of Saddam Hussein's regime. Meanwhile, tensions on the Korean peninsula and elsewhere have been building but also have had to compete with other news.

"A lot of people don't read newspapers, and we don't have 24 hours a day of CNN, MSNBC and Fox just pounding you with war news," said Delos Smith, senior economist at the Conference Board, a private research firm that publishes a monthly survey of consumer confidence.

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Though consumer confidence has slipped lately -- the latest ABC/Money magazine sentiment index fell this week to its lowest level in seven weeks -- economists believe that's due mostly to the nation's sluggish job market, mired in its most prolonged slump since World War II.

Still, Smith added, heightened geopolitical tensions and the lingering threat of terrorism aren't doing anything to help consumer confidence.

"This is a very nervous country," Smith said. "How much it's going to dampen the economy, I don't know, but it's hard to see people relaxed and creating a boom."

What's more, global tensions and the threat of terrorism are helping to keep companies from expanding their business and hiring new workers, adding to the labor-market pain.

"You can't convince a CEO there won't be another war, especially when we've had two in the past two years," said Rajeev Dhawan, Director of the Economic Forecasting Center at Georgia State University in Atlanta. "It's not a conducive environment for investment."

And many U.S. companies have employees and production facilities in the far corners of the globe. That means heightened tensions and the threat of terror attacks add to their costs and can undercut their profits.

Of course, consumers could very well rejoin the worry party if the Iraq conflict drags on, killing more and more people, or if there are scarier developments involving the nuclear weapons program in North Korea, for example, or, of course, if there are more terror attacks.

"I do think there's an undefinable sense of angst, that everything isn't fine," said Robert Brusca, chief economist at Native American Securities in New York.

"The number of Americans killed in Iraq during the peace is [almost] as great as the number killed during the war -- so we have an economic recovery that doesn't look like a recovery, and we have a peace that doesn't look like a peace."  Top of page

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