NABE Panel: War and Domestic Security Are Biggest Threats Facing U.S. Economy

March 2003

“Geopolitical risks – war in Iraq and domestic security – currently constitute the biggest threat to the U.S. economy, according to the latest canvass of NABE members on policy issues,” says Tim O'Neill, President of NABE and Chief Economist, BMO Financial Group. “The NABE panel is also concerned about corporate governance – more regulation is needed as recent changes have not been sufficient to boost confidence in U.S. financial markets. Monetary policy is felt to be appropriate but the panel is divided on the stance of fiscal policy. Stimulus from a modified version of the President's tax plan is expected later this year.”

• A potential war in Iraq and domestic security concerns are the biggest threats facing the U.S. economy.
• Less than one-third of respondents feel increased regulation has instilled more confidence in our financial system.
• Current monetary policy is about right.
• A majority of panelists believe a modified version of the President’s tax proposals will be adopted, with 59 percent expecting some dividend tax relief.
• Fiscal stimulus is expected to add 0.5 percent to real GDP growth in 2003.
  

Survey Highlights

War is the biggest problem facing the U.S. economy. Forty-one percent said international military operations and homeland defense were the biggest problems facing the economy. A growing federal deficit was identified as the next most pressing issue.

More corporate governance regulation is needed. Nearly half believe more regulation is needed, but less than one-third believe more regulation has boosted confidence in U.S. financial markets. Among the regulatory remedies suggested by panelists were creation of a separate sell-side research function in investment bank firms, cited by half the panel, and require expensing of stock options to employees, favored by 44 percent.

Monetary policy is about right. Eighty percent of NABE respondents feel monetary policy is about right; half expect short-term rates will be unchanged in six months and 37 percent expect rates will be between 25 and 50 basis points higher.

Views on fiscal policy are divided. Forty-two percent believe fiscal policy is about right. Those who think fiscal policy is too restrictive rose to 24 percent in this survey compared to only 15 percent who thought so last August. Although panelists think the odds for a double-dip recession are less than 50/50, nearly half now think fiscal, rather than monetary policy, should be used if one occurs.

Most expect a modified version of the President’s tax relief proposals to become law. Nearly two-thirds of the respondents expect aid to states and municipalities will also be included in the budget. Fiscal stimulus is expected to add 0.5 percent to real GDP growth in 2003 and 0.65 percent to growth next year.

Survey Details

National Association for Business Economics
1233 20th Street NW #505
Washington, DC 20036
Phone 202.463.6223 Fax 202.463.6239
nabe@nabe.com
© 2003, NABE®

The NABE Economic Policy Survey presents the consensus of a panel of 223 members of the National Association for Business Economics. Conducted semiannually, this survey was taken March 3-10, 2003. May be reprinted in whole or in part with credit given to NABE. View the survey results, including complete tabulations, online at www.nabe.com. This is one of three surveys conducted by NABE. The other two are the NABE Outlook and the NABE Industry Survey. Laurie Matthias of Capital Guardian Trust Company conducted the analysis for this report.

Survey Details

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