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Online poll: Many threats to economy

Jan 6, 2003  •  Post A Comment

It seems we’re becoming blase about war and terrorism.

Even as the likelihood of the United States going into battle with Iraq grows, few people believe that such a conflict-or even another terrorist attack on U.S. soil-will be major impediments to the area’s economic recovery, according to a Crain’s online poll.

More than 60% of 970 respondents say the risks of war and further terrorist attacks are only two of many factors that could stall an economic rebound in 2003, while 17% say a war could benefit the economy by spurring new orders for locally produced goods and services.

The unscientific poll was conducted over the last two weeks on ChicagoBusiness.com, Crain’s Web site.

“There is certainly no shortage of things that we can be worried about as we move into 2003,” says Carl Tannenbaum, chief economist at Chicago-based LaSalle Bank N.A. “A war with Iraq remains one of the most major concerns, but it isn’t the only thing on the horizon.”

Other concerns focus on more corporate misbehavior and accounting scandals, along with anxieties that the Chicago-area business community isn’t ready to turn the corner on economic recovery yet, which is prompting many executives to take a conservative approach to spending, expansion and hiring, Mr. Tannenbaum says.

Despite those worries, a resounding 64% of respondents say local companies’ profits will improve in 2003, and 59% believe that Chicago’s overall economy will rebound this year.

Businesses will start hiring again this year, predict 62% of respondents, but 58% think most employers will wait until the second half. Only 11% expect companies to add staff before the summer, and 30% are more pessimistic, saying that businesses not only won’t add workers, they’ll make more cuts.

“Most people probably can’t imagine it could get any worse,” Mr. Tannenbaum adds.

There are reasons to be optimistic about modest improvement in the local economy in 2003, he says. Federal tax breaks for businesses and individuals are likely this year, and the big restructuring moves that area companies have made over the past two years should begin paying off.

Upturn, but no boom

Slightly more than half of poll respondents-54%-expect local businesses to boost capital spending in 2003 after several lean years.

Paul Kasriel, director of economic research at Chicago’s Northern Trust Co., expects an upturn, though not a boom. He predicts that companies will be more likely to spend on necessities, like replacing older computer or manufacturing equipment, but will forgo hiring sprees and non-essential purchases until their financial footing is more solid.

Despite respondents’ belief that the local economy will improve this year, 63% expect more corporate meltdowns as the result of scandals or dismal business conditions.

“Investors wouldn’t be human if they weren’t jarred” by the myriad cases of corporate accounting fraud in recent years, Mr. Tannenbaum says. But he expects the pace of scandals to slow this year, as many companies have taken steps to tighten up their financial reporting in the wake of the recent high-profile incidents.

And nearly 66% of respondents expect to see more meaningful reforms this year to curb questionable accounting practices and CEO excesses.

Savings becoming a priority

While businesses may loosen the purse strings this year, poll respondents are split as to whether consumer spending will remain robust: 52% say it will improve, 48% say it won’t.

Mr. Kasriel says less consumer spending is likely because many people will turn to boosting their savings.

“It is finally dawning on households that they’re poor,” he says. “Many people are coming to the realization that if they want to retire before they expire, they are going to have to step up their savings rate.”

Last year, through November, households nationwide saved 3.9% of their income, up from 2.1% the previous year, according to Mr. Kasriel, who predicts that the rate this year will top 4% of household income.

As for the stock market, respondents to the ChicagoBusiness.com poll are ambivalent.

Although 74% say the stock market will close higher in 2003 compared with last year, 58% believe that investors will continue to abandon stocks for other investments.