By James Toedtman - Newsday

WASHINGTON -- Hopes for a quick postwar recovery by the U.S. economy have hit a snag as the war in Iraq continues.

As the timetable for a successful war has been sharply extended by surprise resistance and unexpected attacks in southern Iraq, war nerves have shaken consumer confidence and the already unsteady stock market. A war premium on energy prices persists, and business is nervous and reluctant to push sales in an increasingly anti-Yankee global marketplace, economists say.

''I think we will win the war. But the question is: How do we feel about winning the war and when do we win the war?'' said Martin Regalia, chief economist for the U.S. Chamber of Commerce.

Like military commanders, consumers, economists and business leaders hunt for clues to the length and difficulty of the conflict. ''We're going to know where we're headed in a very short time,'' said Kevin Hassett, economist at the American Enterprise Institute. But, he added, the war ''could drive us into a deep recession.''

As television images of powerful explosions over Baghdad gave way to pictures of hollowed tanks and wounded soldiers, there were new signs that U.S. economic activity was creeping to a halt.

The prewar rally on Wall Street two weeks ago collapsed Monday and the markets slumped for the rest of the week, with the Dow Jones industrials dropping 376 points, or 4.4 percent, in five days. The week's economic data also indicated flat consumer spending for the second consecutive month, lower consumer confidence for the third consecutive month and the dollar at its lowest value in four years.

''A weak dollar may translate into greater exports as it makes our goods more competitive,'' said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. ''That's all good, given economic growth in the U.S. seems to be on life support.''

Conversely, of course, a weaker dollar makes imported goods more expensive for American consumers.

History dictates a preoccupation with energy prices, since the six recessions in the past 33 years have followed energy price spikes. Although crude oil prices reached $40 per barrel three weeks ago, they declined below $30 after the fighting began until rising 10 percent last week.

Still, said Sung won Sohn, economist for Wells Fargo Bank in Minneapolis, prices should be in the $22-$24 range based on current supply and demand, reflecting a war premium of more than $5.

Price pressure has eased in part because disruptions in Venezuela have ended and the demands of a cold winter have passed. But the deeper the Iraq conflict lasts into the summer driving season, the sooner energy prices will increase. War costs are another unknown. The administration's initial estimate of $75 billion is regarded as modest in a $2.2-trillion budget. But by the end of the week, the Pentagon was planning to deploy an additional 100,000 troops.

Further, the estimate includes $3 billion for reconstruction costs. The Congressional Budget Office estimates rebuilding costs at $12 billion to $40 billion a year, while a recent study directed by former Defense Secretary James Schlesinger projected a $20-billion annual cost for a stabilizing and rebuilding effort that would last many years.

Figures like those contributed to growing angst over what Senate budget analyst William Hoagland referred to as the ''shock and awe deficits'' in the federal budget, which have soared from $118 billion to more than $400 billion this year alone.

<a href=www.newsday.com>By James Toedtman CHIEF ECONOMIC CORRESPONDENT

March 30, 2003 Washington -- Hopes for a quick postwar recovery by the U.S. economy have hit a land mine on the road to Nasiriyah. As the timetable for a successful war has been sharply extended by surprise resistance and unexpected attacks in southern Iraq, war nerves have shaken consumer confidence and the already unsteady stock market. A war premium on energy prices persists, and business is nervous and reluctant to push sales in an increasingly anti-Yankee global marketplace, economists say. "I think we will win the war. But the question is: How do we feel about winning the war and when do we win the war?" said Martin Regalia, chief economist for the U.S. Chamber of Commerce. Like military commanders, consumers, economists and business leaders hunt for clues to the length and difficulty of the conflict. "We’re going to know where we’re headed in a very short time," said Kevin Hassett, economist at the American Enterprise Institute. But, he added, the war "could drive us into a deep recession." As television images of powerful explosions over Baghdad gave way to pictures of hollowed tanks and wounded soldiers, there were new signs that U.S. economic activity was creeping to a halt. The prewar rally on Wall Street two weeks ago collapsed Monday and the markets slumped for the rest of the week, with the Dow Jones industrials dropping 376 points, or 4.4 percent, in five days. The week’s economic data also indicated flat consumer spending for the second straight month, lower consumer confidence for the third straight month and the dollar at its lowest value in four years. "A weak dollar may translate into greater exports as it makes our goods more competitive," said Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi Ltd. "That’s all good, given economic growth in the U.S. seems to be on life support." Conversely, of course, a weaker dollar makes imported goods more expensive for American consumers. History dictates a preoccupation with energy prices, since the six recessions in the past 33 years have followed energy price spikes. Although crude oil prices reached $40 per barrel three weeks ago, they declined below $30 after the fighting began until rising 10 percent last week. Still, said Sung won Sohn, economist for Wells Fargo Bank in Minneapolis, prices should be in the $22-$24 range based on current supply and demand, reflecting a war premium of more than $5. Price pressure has eased in part because disruptions in Venezuela have ended and the demands of a cold winter have passed. But the deeper the Iraq conflict lasts into the summer driving season, the sooner energy prices will increase. War costs are another unknown. The administration’s initial estimate of $75 billion is regarded as modest in a $2.2-trillion budget. But by the end of the week, the Pentagon was planning to deploy an additional 100,000 troops. Further, the estimate includes $3 billion for reconstruction costs. The Congressional Budget Office estimates rebuilding costs at $12 billion to $40 billion a year, while a recent study directed by former Defense Secretary James Schlesinger projected a $20-billion annual cost for a stabilizing and rebuilding effort that would last many years. Figures like those contributed to growing angst over what Senate budget analyst William Hoagland referred to as the "shock and awe deficits" in the federal budget, which have soared from $118 billion to more than $400 billion this year alone.

Universal Resource Locator Posted on Tue, Mar. 25, 2003 By Daniel Altman NEW YORK TIMES

Depending on the outcome of the war in Iraq, its impact on the economy could range anywhere from a recession to a mild stimulant.

The early indications for the economy, as for the war, had been good. On Monday, however, a touch of trepidation dampened the mood.

"On Friday, when everyone went home for the weekend, there was a degree of euphoria," said Henry G. Willmore, chief U.S. economist at Barclays Capital. "There's been a bit of reassessment given the events over the weekend." Still, he added, since a week ago Monday night, when President Bush announced the 48-hour deadline for Saddam Hussein to leave Iraq, "we've still had significant declines in oil prices, and the stock market is up."

For months, expert studies have predicted that a brisk campaign followed by total victory would lead to lower oil prices and increased consumer confidence. In addition, the removal of uncertainty could help some businesses to make investment decisions. Even in the best case, though, some side effects -- from higher mortgage rates to deepening government deficits -- could shave off part of the economy's gains.

"In terms of growth in the first half of the year, we're going to be somewhere in the vicinity of 2 percent" at an annual rate, predicted Peter Hooper, chief U.S. economist at Deutsche Bank Securities. Without the war-related uncertainty, he said, the economy would probably have been able to expand at an annual rate of 3 percent in the first half.

Economists generally agree that the economy needs to grow by at least 3 percent annually in order to improve employment. With growth of just 2 percent, hundreds of thousands of jobs could be lost in a year.

In addition to the stagnating effects of uncertainty, rising oil prices in the months leading up to the war substantially influenced the economy through a "war premium" caused by worries about disrupted oil shipments from the Persian Gulf. The strike in Venezuela's oil industry, which has reduced global supply, and now problems in Nigeria, make isolating the war's effect on prices difficult, though.

Edward F. McKelvey, a senior economist at Goldman Sachs, said he had heard figures of a $7- to $10-a-barrel premium in the first quarter of this year. A premium of $10, he said, would cost consumers about $50 billion a year. Still, he cautioned, "you don't have any really good sense of where the baseline was."

In the first few days of the war, the premium in oil prices had seemed to be vanishing. By Friday, the price of crude oil had fallen to about $27 a barrel from a peak of about $38 on March 7. If that trend held, the war's indirect impact on the economy could be minimal, according to a study by William D. Nordhaus, a professor of economics at Yale University. And yet, as it appeared that Iraqi resistance to the invasion might be stiffening Monday, oil prices edged back up.

In the worst case, a price spike could cost as much as $391 billion over 10 years, Nordhaus wrote. The Center for Strategic and International Studies forecast that a prolonged war accompanied by serious terrorist attacks could drain $472 billion from gross domestic product in this year alone. A loss of that magnitude could qualify as another recession.

Blaming the war for weaker retail sales and a lack of hiring might be a step too far, though, according to McKelvey. "How much of that's war uncertainty, and how much of it's other stuff?" he said. "We would tend to go with other stuff."

On the other hand, a successful conclusion to the U.S.-led invasion could give the economy an immediate shot in the arm for the second half of the year. A report published in November by the Center for Strategic and International Studies suggested that the economy could gain an extra $52 billion in growth in the best case.

"If we get through this without major damage to Iraqi oil facilities, and without any kind of terrorist action, and relatively quickly on the military front, I would think that would be good for the economy," Hooper said. "It would be good for the equity market, and it would be good for consumer confidence."

Source Tuesday March 25, 7:10 PM

SINGAPORE (Dow Jones)--Oil prices will likely remain higher for longer than is the consensus view, even if the war in Iraq is a "quick and clean" one, Goldman Sachs said in its latest research report.

Goldman said the oil market is experiencing a number of other shocks that are significant to help the prices to stay high.

Oil prices could overcorrect on the downside in the near term. However, after the resolution of the war, oil prices will likely stabilize in the mid-US$20 a barrel range, the report said.

If the war is not quick and clean, there is potential upside to the Brent crude oil forecast of US$26/bbl for 2003, it said.

Goldman said several dislocations other than Iraq are there in the oil market. They include Venezuela's lower production and Japan's closure of nuclear power plants.

Venezuela's production, around 2 million b/d, is 1.4 million b/d less than the pre-strike level, and Japan's closure of most of its nuclear plants has led to a 500,000 b/d increase in oil demand

In the meantime, the natural gas supply crisis in the U.S. has led to users switching from natural gas to oil products, adding 200,000 b/d of demand in 2003. The outbreak of civil unrest in Nigeria over the past week has caused the shut-in of more than 550,000 b/d of production.

The net impact of these shocks is very low inventories, which should support prices for some time, the report said.

-By Xu Yihe, Dow Jones Newswires; 65-6415-4068; yi-he.xu@dowjones.com

-Edited by George Bernard

<a href=www.nytimes.com>Concerns About Economy And War By DANIEL ALTMAN

epending on the outcome of the war in Iraq, its impact on the economy could range from a recession to a mild stimulant.

The early indications for the economy, as for the war, had been good. Yesterday, however, a touch of trepidation dampened the mood.

"On Friday, when everyone went home for the weekend, there was a degree of euphoria," said Henry G. Willmore, the chief United States economist at Barclays Capital. "There's been a bit of reassessment given the events over the weekend." Yet he added that since a week ago last night, when President Bush announced the 48-hour deadline for Saddam Hussein to leave Iraq, "we've still had significant declines in oil prices and the stock market is up."

For months, expert studies have predicted that a brisk campaign followed by total victory would lead to lower oil prices and increased consumer confidence. In addition, the removal of uncertainty could help some businesses to make investment decisions. Even in the best case, though, some side effects — from higher mortgage rates to deepening government deficits — could shave off part of the economy's gains.

That best case would help to offset what has so far been a disappointing first quarter. Before the first Tomahawk missile was launched, the uncertainty that preceded the war had already taken a toll.

"In terms of growth in the first half of the year, we're going to be somewhere in the vicinity of 2 percent" at an annual rate, predicted Peter Hooper, the chief United States economist at Deutsche Bank Securities. Without the war-related uncertainty, he said, the economy might have expanded at an annual rate of 3 percent in the first half.

Economists generally agree that the economy needs to grow by at least 3 percent annually in order to improve employment. With growth of just 2 percent, hundreds of thousands of jobs could be lost in a year.

In addition to the stagnating effects of uncertainty, worries about disruptions of oil shipments from the Persian Gulf caused oil prices to rise in the months leading up to the war, putting further pressure on the economy. The strike in Venezuela's oil industry, which has reduced global supply, and now problems in Nigeria make isolating the war's effect on prices difficult.

Edward F. McKelvey, a senior economist at Goldman, Sachs, said that he had heard figures of a $7- to $10-a-barrel price rise in the first quarter of this year. An increase of $10, he said, would cost American consumers about $50 billion a year. Still, he cautioned, "you don't have any really good sense of where the baseline was."

In the first few days of the war, the premium in oil prices had seemed to be vanishing — dropping by Friday to under $27 a barrel from a peak of $39.99 during New York trading on Feb. 27. If that trend held, the war's indirect impact on the economy could be minimal, according to a study by William D. Nordhaus, a professor of economics at Yale. And yet, yesterday, as it appeared that Iraqi resistance might be stiffening, oil prices rose.

In the worst case, a price spike could cost the United States as much as $391 billion over 10 years, Professor Nordhaus wrote. The Center for Strategic and International Studies in Washington forecast that a prolonged war accompanied by serious terrorist attacks could drain $472 billion from the gross domestic product in this year alone, or 4.5 percent. A loss of that magnitude could qualify as another recession.

On the other hand, a successful conclusion to the United States-led invasion could give the economy an immediate shot in the arm for the second half of the year. A report published in November by the center suggested that the economy could gain an extra $52 billion in growth in the best case.

"If we get through this without major damage to Iraqi oil facilities, and without any kind of terrorist action, and relatively quickly on the military front, I would think that would be good for the economy," Mr. Hooper of Deutsche Bank Securities said. "It would be good for the equity market, and it would be good for consumer confidence."

In terms of companies' actions, Mr. Willmore of Barclays said, "quite a few of them have probably postponed making some decisions, so in effect you don't get the investment and the hiring that might be taking place."

Even while euphoria swept the stock market last week, not all of the war's immediate effects on the economy were positive. Since the White House signaled that diplomatic efforts to avert war had run their course, a sell-off in the bond market had been driving yields higher and putting upward pressure on mortgage rates. The bond market did rally yesterday as stocks plunged, but 10-year Treasury yields stayed 0.4 percentage point above the 44-year low reached on March 10.

The direct cost of the war to the federal government, which the White House estimated yesterday at $70 billion to $90 billion, could also hurt the economy, according to some experts. Swelling budget deficits and greater borrowing by the government, they argue, could push up long-term interest rates.

"Those who are writing the federal budget, to be prudent, must factor this in with everything else that they're doing," including fresh tax cuts and a prescription drug benefit for Medicare, said Robert L. Bixby, executive director of the Concord Coalition, a fiscal watchdog group in Washington.

Despite these potential drags, Mr. Willmore said he expected the economy to manage reasonable growth of 3 percent this year, with money from refinancing of mortgages and the tax cuts in the new budget helping to support consumers' spending.

The economy could also benefit to the extent, albeit unknowable, that the war diminishes threats to national security. But in the last few months experts have argued conversely that the war could actually increase the likelihood of terrorist attacks.

In either case, Mr. Hooper warned that the overall outlook was still unclear.

Even "if Iraq is resolved successfully," he said, "there are other potential geopolitical clouds on the horizon."