- The Washington Times - Thursday, January 30, 2003

The Dow Jones Industrial Average plunged as much as 144 points in early trading yesterday morning in response to President Bush's State of the Union speech urging Americans to brace for war with Iraq, but managed to recover to a 22-point gain later in the day on bargain hunting.
The dollar also dropped yesterday, while oil prices rose in response to Mr. Bush's evening speech.
Business leaders said they support the economic-growth agenda Mr. Bush outlined in the speech, but the market reaction showed that jitters about the war on Wall Street and Main Street are overriding hopes for stronger growth coming from additional tax cuts.
Helping stocks was the prospect of bigger profits at oil companies, which have been boosted by a sharp rise in oil prices. Crude prices jumped another 3 percent yesterday to $33.65 a barrel in New York trading after Mr. Bush warned he might use the "full force and might" of the U.S. military against Iraq.
"Bush made it pretty clear that there will be an attack on Iraq," said John Kilduff, senior vice president at Fimat USA Inc. "The reality of a war in the not-too-distant future has pushed prices up."
Oil analysts say crude prices could easily surpass $40, the previous record set during the 1991 Persian Gulf war, if the United States invades Iraq.
Fear that such high prices could crimp consumer spending and derail the sputtering U.S. economic recovery have pushed the dollar down against other major currencies in recent weeks, and it drifted lower again yesterday.
Underscoring the threat to the economy from high oil prices, the Federal Reserve yesterday cited the war "premium" on oil prices, along with "geopolitical risks" in an allusion to Iraq, as the biggest constraints on growth and job creation in a statement after a meeting of its policy committee.
But the Fed said it expects those issues to dissipate at some point, enabling growth to resume. As a result, the central bank took no action yesterday to further reduce interest rates from their 41-year lows.
John Silvia, chief economist at Wachovia Securities, said President Bush so far has not publicly acknowledged the link between the war and economic growth that just about every commentator on the economy and markets has been citing.
"Does Bush recognize this interaction?" he asked. "War talk clearly is limiting employment and capital spending. There needs to be some resolution to anxiety about the economy due to war talk."
While the economy's 2 percent to 3 percent average growth rate may be fast enough to satisfy the Fed, Mr. Silvia added, that is not strong enough to generate the job growth sought by Mr. Bush.
The president's plan to accelerate his 2001 income-tax cuts and cut dividend taxes may help to spur stronger growth and jobs, but Mr. Bush needs to make a stronger case for the legislation to convince the public and ensure passage in Congress, Mr. Silvia said.
Mr. Bush devoted only a few lines in his speech Tuesday night to the tax-cut plan.
Business groups continued to applaud Mr. Bush's effort to speed up tax cuts, as the best way to quicken growth.
"It will put money back in consumers' pockets and paychecks sooner rather than later," said the International Mass Retail Federation, which noted that consumers have been the primary engine of economic growth for months.
Jerry Jasinowski, president of the National Association of Manufacturers, said the combination of consumer and small-business tax breaks advocated by Mr. Bush should push up growth and increase jobs.
"Consumer spending in the final analysis is the basic key to business expansion and job creation," he said.
Small businesses, which historically do the most hiring in the United States, would get more money to create jobs through a tripling of the write-off for equipment investments, and tax-rate cuts for small-business owners and S corporations, he said.
"Congress should focus promptly on the small-business incentives of President Bush's plan as the fastest way to begin putting" people back to work, said John Challenger, president of the Chicago outplacement firm Challenger, Gray & Christmas.

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