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END OF WAR EQUALS NEW BEGINNING FOR
ECONOMY
By Greg
Anderson
On April 30, 2003, Alan Greenspan appeared before the House of Representatives to report the economy was showing some signs of improvement since the termination of the war in Iraq.
Since the end of the war, oil prices have fallen, consumer confidence has improved, and financial markets have rallied.
Mr. Greenspan told members of the House Committee on Financial Services he thinks the economy will expand.
"I continue to believe the economy is positioned to expand at a noticeably better pace than it has during the past year, though the timing and the extent of that improvement remains uncertain," Greenspan said.
Greenspan’s appearance before the House of Representative was unprecedented. Normally, the chairman of the Federal Reserve travels to Capitol Hill twice each year to answer questions of the economy and monetary policy. He will, however, return in July for his normally scheduled meeting.
On May 6, 2003, the Federal Reserve announced that it would be holding short-term interest rates steady but is holding the right to change them as early as next month.
If the American Economy doesn’t recover from its weakened state in the near future, the Federal Reserve stated that it would be ready to cut rates. This suggests that many officials of the central bank remain considerably more nervous than Alan Greenspan, the Chairman of the Federal Reserve.
In announcing that it was keeping the benchmark federal funds rate on overnight loans between banks at 1.25 percent, the Federal Open Market Committee, the Fed's rate-setting group, acknowledged that companies have recently cut both production and employment.
"However, the ebbing of geopolitical tensions has rolled back oil prices, bolstered consumer confidence, and strengthened debt and equity markets," the committee said in a statement. Together, those developments "should foster an improving economic climate over time," it added.
The chief danger facing the economy, The Fed committee said, is that inflation is already low and will fall substantially as demand for new products remains weak. Many economists believe that deflation can cripple an already injured economy by increasing debt levels and causing consumers to reduce their spending, with the hope of bargains coming along in the near future.
Most economists had expected the Fed to leave its target for the federal funds rate unchanged at 1.25 percent; the benchmark rate is at its lowest level since 1961. The concerned tone of the Fed’s statement exposed a disagreement between Mr. Greenspan and some of his colleagues.
Mr. Greenspan has argued that the war in Iraq caused many of the recent economic problems, including rising layoffs and a new decline in companies' production. With oil prices having fallen and consumers and business executives no longer worried about a protracted war, the American economy will probably emerge from its long slump this year, Mr. Greenspan told Congress last week.
Other Economists are also hoping for a result similar to what Mr. Greenspan told to Congress. Many American citizens having lost their jobs, or unable to find jobs are beginning to loose hope.
Karen Anderson, 46, a recent college graduate and current elementary school secretary said she is losing hope in the economy.
“I went back to school a few years ago to get my degree,” Anderson said. “I wanted to get a decent career instead of just having a job, but with the job market and economy way it is now, I am beginning to loose hope.”
Since March 2001, the economy has lost more than two million jobs, making the current recovery even worse than the so-called jobless recovery of the early 1990's after the recession of the late 80s. Despite the layoffs and the deep cuts in corporate spending on equipment and technology, businesses are using only about three-quarters of their production capacity, leaving some Fed officials worried that the economy needs additional help.
However, on 29, April 2003 the commerce department reported that household spending gained .4 percent in the Month of March, after only rising .1 percent in the month of February. Household incomes also raised .4 percent as well in the month of March as opposed to the .2 percent in February. However personal savings dropped from 3.7% in February to 3.6% in March. This shows that Americans spent more money in the month of March than they did in the month of February.
Bruce Davidoff, a financial analyst with Northwestern Mutual Financial Network, said the workers continue to struggle.
“The economy does seem to show signs of improvement in recent weeks,” Davidoff said. “But the workforce is still showing signs of struggling, in my position I am trying to hire people when and where I can.”
The unemployment rate did rise from 5.8% in March to 6% in April, matching an 8-year high, as the deepest job slump in 20 years.
President Bush, speaking at United Defense Industries in Santa Clara, California on 2, May, said people should make known that they want tax relief.
“That 6 percent should say loud and clear to members of both political parties in the United States Congress, that we a robust tax relief so our fellow citizens can find jobs,” Bush said.
The economy lost 48,000 jobs in April, the Labor Department reported, in the last three months 525,000 jobs have disappeared. Since 1960, every loss of that magnitude has occurred during a recession.
The calling up of about 220,000 military reservists for the war in Iraq seems to have contributed to the recent job losses according to the Labor Department. Workers called up to active duty are counted as if they had left the labor force, and employment numbers are likely to rise in coming months as they return to work.
The average workweek fell to 34 hours last month, from 34.3 hours, tying its lowest level on record. The drop was the sharpest since the blizzard of 1996, although Easter vacations, which occurred in April this year and in March last year, might have aggravated the decline.The report, released on 3 May, appeared to increase pressure on policy makers trying to lift an economy that has been struggling for almost three years to emerge from the hangover after the 1990's boom.
Thomas Zeleznock, 22, a recent Marist College Graduate said he is a bit uneasy about the near future right now.
“With the economy the way it is, I have my worries,” said Zeleznock. “I would like to find a job in my field of study soon before I forget everything I learned.”
Some people are feeling a bit more positive about current trends in the economy. Daniel Sutter, 35, an Information Technology Specialist for Sisco Systems said he feels differently.
“According to everything I have been reading, the economy seems to be making somewhat of a turn for the better,” said Sutter. “If the economy seems to be making a comeback I am hopeful that the job market will make a comeback as well.”
Labor leaders and some Democrats used the recent labor report to call for an extension of unemployment benefits. The extension passed by Congress and signed by President Bush in January, giving many workers 13 weeks of additional benefits after their usual 26 weeks end.
In place of an extension, President Bush has proposed giving unemployed workers money for training programs, day care or other costs associated of a job search. If they found a job before they had used all the money, they could keep the remainder.
Claire Buchan, a White House spokeswoman, said Mr. Bush was focused on improving the economy, not extending jobless benefits.
"People want jobs; they don't want unemployment checks," Ms. Buchan said. “There is a feeling of satisfaction that a person has through having a job, most people don’t like doing nothing, it gives a sense of non-satisfaction, and it can be very boring.”
With the predicted improvement of the economy and the hope of the job market to improve many employers are looking forward to getting their businesses back on the right track.
Les Baer, 42, President of Meridian Vat Reclaim, said his company has suffered.
“In the last year we have had to lay off a lot of our employees,” Baer said. “Profits were down, and the company suffered some severe monetary losses.”“I am looking forward to the next year,” Baer said. “If the economy takes a turn for the better and the job market increases, I would like to be able to hire a larger staff, move into a larger office in a nicer location, and basically get my company back on its feet.”