A recovery no one buys

The US economy enters 2003 in a peculiar pinch - with its growth prospects squeezed by excesses of the past and burdens of the future.

Forecasters see the nation's economy growing a respectable 3.2 percent or so in 2003. For all of last year, too, the economy was expanding. Interest rates remain at 40-year lows.

But don't try to persuade ordinary Americans - people who work, save in retirement accounts, and drive cars - that hard times are over.

To many, the job outlook still feels bleak, a carry-over from the 1990s when many corporations expanded too fast. Investors, too, haven't returned to bullish ways, waiting instead for boomtime profits to reappear. And shoppers, carrying more debt than ever, are in no mood to party like it's 1999.

Oil and gasoline prices, moreover, are up sharply from last year - a hint of the economic uncertainties posed by America's showdown with Iraqi leader Saddam Hussein.

All this puts a drag on what most economists still view as a period of economic recovery. Consumer confidence declined sharply in December, largely due to a discouraging job outlook, a private research group reported Tuesday. The New York-based Conference Board said its Consumer Confidence Index dropped to 80.3 from a revised 84.9 in November. Analysts had been expecting a reading of 88.0.

"There is a lot of dourness about the economy," says Brian Wesbury, chief economist for Griffin, Kubik, Stephens & Thompson, a Chicago brokerage house. "I'm not sure why."

But then he cites a list of troubles, from possible war to high energy prices and corporate malfeasance - all factors bothering consumers and business.

The growth rate forecast for 2003 isn't enough to shrink the 6 percent jobless rate soon. That has the attention of President Bush, who plans to propose further tax cuts to stimulate growth.

So far, consumer spending has been vital in lifting the economy out of the recession that began in March 2001 - a slump that has not been declared officially over.

But now, "households are finally facing up to the fact they are poorer for three years running," says Paul Kasriel, an economist at Northern Trust Co. in Chicago. Burdened with debt and shrunken investments, many consumers are starting to make a greater effort to save. The personal savings rate rose from 2.3 percent in 2001 to 3.9 percent in the first 11 months of 2002.

"If you want to retire before you expire, you have to save more," says Mr. Kasriel.

In addition to the stagnant stock market, many families aren't so sure that home values will rise as much as in the past.

The biggest cloud on the horizon is a possible war with Iraq.

"That will kill one quarter of growth pretty well," figures Cynthia Latta, an economist with Global Insight in Lexington, Mass. "Life gets put on hold while you stay at home watching CNN."

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