News Column

The Military/Economy Connection

May 2003, HISPANIC BUSINESS Magazine

Jesús Chavarría, Editor & Publisher

The stagnant economy, a dagger aimed at the heart of George W. Bush's second term, will not immediately respond to the president's economic growth program," wrote columnist Robert Novak, paraphrasing a White House official. With victory in Iraq all but assured, Mr. Bush's stimulus efforts are likely to receive increased scrutiny. And failure to deliver domestic economic progress could expose the adminis-tration to charges that it is excessively focused on foreign policy to the detriment of U.S. taxpayers precisely the criticism that doomed the last Bush presidency.

As 2003 began, forecasters predicted a slowdown during the Iraq conflict followed by a surge in its aftermath. But as we approach the year's halfway point, the assumptions underlying this economic strategy look questionable. On the employment front, a report from Goldman Sachs states, "With U.S. companies now facing tighter constraints on revenue growth and operating in an environment where cyclical growth drivers are less powerful, they are much stingier in hiring." A Reuters poll of economists found labor markets probably won't improve for the rest of 2003.

Consumer confidence illustrates the short-lived nature of war-inspired surges. The launch of the Iraq offensive in March caused an uptick in consumer confidence: The number of people who rated the U.S. economy as "excellent" or "good" jumped from 22 percent to 33 percent, according to poll results from The Gallup Organization. But within a week the number started falling again. Multiple polls show investor and consumer confidence at their lowest levels in nine years (see Corner Office, March).

If military victory won't stimulate an upturn, what about increasing the previously mentioned stimulus package? At press time, the Republican-controlled Senate had halved the tax-cut package. An Associated Press poll showed 64 percent of the public opposed the cuts. The Federal Reserve has little room to maneuver on interest rates, so limitations loom for both monetary and fiscal policy solutions.

With the private economy stagnant, minority entrepreneurs have another source of potential business: defense spending. Although the government has become more contractor-friendly in recent years, and online resources such as Commerce Business Daily (http://cbdnet.gpo.gov/index.html), the 8(a) program (www.sba.gov/8abd), and RedWire (www.hispanicbusiness.com/redwire) streamline the process, barriers to entry remain high. On the upside, however, a national forecast by the Los Angeles County Economic Development Corp. predicts "government spending will grow by 3.1 percent in 2003, a little slower than in 2002, and decelerate to 2.3 percent in 2004."

Compared to other industries or the overall economy, 2.3 percent growth sounds good. Perhaps the connection between military spending and economic expansion will prove correct one way or the other.



Source: HISPANIC BUSINESS Magazine


Story Tools