Survey Details

Greatest Short-Term Risk to the U.S. Economy

Domestic concerns—the increasing deficit and slow employment growth—again topped the list of serious problems facing the U.S. economy, with each drawing 25% of the vote. Terrorism picked up 19%, higher than the 13% international military operations received seven months ago but less than half its percentage a year ago. Note that the survey was taken before the Madrid bombing. Inflation is low on the list, as are worries about household or corporate debt. Overcapacity has nearly disappeared as a concern.

Most serious problem facing the U.S. economy
(percent of survey panelists responding)

	Aug 02	Mar 03	Aug 03	Mar 04
Excessive growth in government spending/ growing federal deficit	na	11	21	25
Unemployment/employment growth	na	na	16	25
International military operations/homeland defense	3	41	13	19
Excessive household/ corporate debt	7	5	3	6
Inflation	na	na	1	6
Overcapacity	5	8	10	1

Greatest Long-Term Risk to the U.S. Economy

We separated long-term concerns from short-term for this survey. Deficits and demographics dominated the long-term risks, with 27% citing the growth of the elderly population and another 19% health care costs. The federal deficit was the primary concern of 24% of the respondents.

Longer-Term Challenges to the U.S. Economy
(percent of survey panelists responding)

	Survey Date March 2004
Growth of elderly population/dependency ratio	27
Federal deficit	24
Health Care	19
Education system	12

Although only 12% of respondents cited the education system as the biggest long-term worry, 85% said that education reforms are necessary to maintain the current standard of living of our citizens.

Strengths in the U.S. Economy

Productivity gains and our country’s technological lead were considered the economy’s greatest strengths by 45% of survey respondents. This category has topped the list of strengths for more than two years. A flexible economy and deep capital markets garnered 24% and 11% of the responses, respectively.

U.S. Economic Strengths
(percent of survey panelists responding)

	Aug 02	March 03	Aug 03	March 04
Productivity/technology	46	54	43	45
Flexible labor markets/economy	14	10	11	24
Deep capital markets	24	8	12	11

Monetary Policy Is About Right

Two-thirds of our panelists think monetary policy is about right, about the same as last August. Worry is growing concerning too much stimulus: in this survey, 28% believed monetary policy to be too stimulative compared to only 9% who thought so last March.

NABE Panelists Views on Monetary Policy
(percent reporting)

	Current monetary policy is:
Survey Date	Too restrictive	About Right	Too Stimulative
March 2004	3	70	28
August 2003	9	68	23
March 2003	8	81	9
August 2002	8	77	12
March 2002	3	78	17
August 2001	17	67	11
March 2001	34	56	7
August 2000	9	76	12
February 2000	5	62	32
August 1999	3	74	22
March 1999	2	75	23
October 1998	7	82	11
May 1998	2	76	22
February 1998	8	86	6
November 1997	4	83	7
August 1997	6	85	7
May 1997	12	74	14
February 1997	7	83	10
November 1996	14	77	8

Looking ahead, half of respondents (48%) would prefer monetary policy to remain unchanged over the next six months, while nearly the same number (47%) would prefer it to tighten. Just over half (54%) think short-term interest rates will increase, while 43% expect them to stay the same.

Fiscal Policy

Nearly two-thirds of respondents felt current policy is too stimulative, up from half six months ago, while only 6% believe it is too tight. More than three-quarters of respondents believe fiscal policy should become more restrictive over the next two years, up from two-thirds in the last survey. However, only 40% believe fiscal policy will tighten, while 16% believe it will become even looser.

Panelists Views on Fiscal Policy
(percent reporting)

	Current fiscal policy is:			Fiscal policy should be in two years:		Fiscal policy is expected to be in two years:
	Aug 2003	Mar 2004		Aug 2003	Mar 2004	Aug 2003	Mar 2004
Too Stimulative	49	63	Tighter	63	77	25	40
About right	40	28	Same	20	14	35	42
Too tight	9	6	Looser	14	8	39	16

Trade Deficits and Jobs

The U.S. current account deficit is now 5% of GDP. Twenty-seven percent of our panelists believe this is not a threat to financial stability, while 21% believe it is. A majority (52%) said it isn’t yet, but will be. Those who thought the size of the current account deficit was a threat said the most effective way to counter it would be to orchestrate global policies aimed at growth. Encouraging foreign investment into the U.S. and reforming the U.S. tax system to become more consumption based were also favored. Panelists think raising tariffs and subsidizing exports are bad ideas.

Ways to Reduce Current Account Deficit
Average score (1 least effective, 5 most)

Orchestrate global growth	3.6
Encourage foreign investment in US	3.0
Reform US tax system	3.0
Persuade China to float yuan	2.8
Persuade Japan to stop intervention	2.6
Talk the dollar down	2.2
Subsidize exports	1.6
Raise tariffs	1.3

The major threats posed by the trade gap are higher interest rates and slower growth, according to 38% of panelists, while 28% saw a greater risk in the political pressure for trade barriers.

A related issue is the strength of the dollar. Although 38% of panelists said that U.S. policymakers could have little impact on the dollar, 61% of panelists felt policymakers could. However, 51% felt the U.S. should not have a dollar policy, but should let the market set the exchange rate. Thirty-one percent favored a strong dollar policy, while only 18% wanted the government to push the dollar down.

Only 9% of panelists felt that trade was hurting employment significantly, although 31% said it was having at least a small impact. Sixty percent said there was no impact. Only 19% of respondents felt that there should be any protection even for individual sectors of the U.S. economy; of the 19% who said there should be, three-quarters cited national security as the only justification.

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