The stars are beginning to line up for the U.S. economy. The war in Iraq ended quickly, the Bush tax cut has become law, economic indicators point to growth in the second half of the year and the dollar is declining against other currencies, boosting the prospects for exports. To help nudge things along, the U.S. Federal Reserve last week cut interest rates again, bringing them to their lowest level in 45 years.
The stimulus is helpful, but the key ingredient right now is confidence. For the future to brighten, both American consumers and businesses must believe there will be an economic recovery.
Last week, the U.S. Commerce Department revised downward its estimate of first-quarter growth, from an annual rate of 1.9 percent to 1.4 percent -- a figure that matches the fourth quarter of 2002. The main factor for the downward revision was the uncertainty created by the war in Iraq, which depressed consumer and business spending and increased energy prices. Business inventories rose only about one-third of the amount forecast a month ago, a natural response to the prospect of war. Business investment was also weak, falling about 4.4 percent during the first quarter. Orders for durable goods continued to slide, reaching their lowest level in a year.