War's quick start buoys stock market, tempers oil prices
Further gains on Wall Street could hinge on consumers. Retailing and travel are weak.
The bombs falling in Baghdad may be doing at least one thing for the US economy: reducing some of the uncertainty that has stalled business and financial markets.
Now, economists are hopeful that business will start to move forward on hiring decisions and production increases. Wall Street, which started the year with a fizzle, has just posted its strongest weekly gain in two decades, as investors became more confident that war may be short. Furthermore, soaring oil prices, which have helped drive gasoline prices higher, are falling.
"At least there is a resolution," says senior economist Mark Vitner of First Union Bank in Charlotte, N.C. "The bulk of the war will soon be behind us, and there will be a conclusion to the Iraq question."
Analysts warn, however, that some numbers are not likely to improve right away. Cold weather restrained housing this month. And auto sales are expected to remain slow despite incentives from several automakers. "There will be a bit of a pause in March and April," says Mr. Vitner.
But by summer, consumers may get some help from the energy markets, where the future price of crude oil and gasoline fell last week. That's because energy traders discounted oil-field fires and focused on the quick pace of US forces. "This will be a shot in the arm to consumers," says John Kilduff at Fimat USA, a brokerage firm.
Some retailers are also reporting something of a "CNN effect," as some consumers stay glued to their television sets instead of shopping. Sears Roebuck, for example, says its sales were softer in the first few days of the war. The actual impact, however, may not be as great the first Gulf War, when people had trouble going to bed as they watched reports from Kuwait. "It's certainly not as unique as it was," says Vitner. "And there are televisions everywhere, so you don't miss anything if you have to run to the bank."
If Americans perceive that the war is going well, this might help business, says economist Sung Won Sohn of Wells Fargo Banks in Minneapolis. "I've talked to the production foremen, and they say they need to replace computers, software, ball bearings," says Mr. Sohn. "Part of that pent-up demand could be unleashed."
But a business-confidence survey by Economy.com suggests it may take more than just a few days of American troops securing Iraqi oil wells. "Confidence was holding firm through the end of January, but since then it has just plunged," says Mark Zandi, chief economist at the website.
Consumers are also wrestling with war fears. "I think there is a lot of anxiety about going to any large public place - airports, malls, and downtown areas of cities," says Richard Curtin, director of surveys of consumers at the University of Michigan. "In the weeks ahead, I think people will cut down on their travel."
In fact, that appears to be happening. Jack Sibbach, director of sales and marketing for the ski resort in Sun Valley, Idaho, estimates visits are down 12 percent for March. "People who would normally come two or three times are not," he says.
San Francisco, which is heavily dependent on tourism, has seen a drop in international visitors since the Sept. 11 attacks. Now, restaurateur Mariann Costello of Scoma's, one of the oldest restaurants on Fisherman's Wharf, worries that war will make things even worse. "People are on a wait-and-see mode," she says.
Americans are also hesitating about travel abroad. Take Dali Wiederhoft of Minneapolis, who canceled a trip to France. She describes herself as someone who loves French culture and normally visits twice a year. But, she says, "I would be disturbed to travel in this environment and be partying when war is going on."
Many travelers are sticking closer to home. One of the beneficiaries is the Westin Beach Key Largo Resort in Florida, where Glenn Hoover, the general manager, says he's seen more last-minute bookings. "People are changing from more risky to less risky," he says. But he warns that should there be any significant acts of terror, this could change quickly. If that were to happen, he may have to lay off staff as a last resort. "We're not sure what will happen," he says. "We're just hoping for the best."
• Stacey Vanek Smith contributed to this report.