"Uncertainty Is the Enemy of Growth"

The Index of Small Business Optimism dropped to its lowest level for 2002 in December. This came on the heels of November's report of job creation—the first positive reading in several months. Firms reported widespread price cutting that led to lower profits and a reduction in employment for December. The largest contributors to the decline in the Index were lowered expectations for the economy and for earnings. William Dunkelberg, the chief economist of the National Federation of Independent Business, suggested that unwarranted media "trash talking" about the condition of the economy may have contributed to small business owners' waning optimism and its expression in the "stumble" of the Index. When placed in the perspective of the historical performance of the Index, December's numbers were by no means the worst seen. The net percent of those small business owners that expected improved economic conditions in the next six months was 43 points higher than that registered in December 2000 (that reading had predicted the recession of 2001). Among the encouraging results of December's survey were the improvements in the outlook for hiring and capital spending plans. In response to the volatility that December's results reflect in owners' outlook, Dunkelberg notes that "[u]ncertainty is the enemy of growth, and we have a bit of uncertainty to resolve to say the least."

According to Stuart G. Hoffman, chief economist at PNC Financial Services Group Inc. and chairman of the American Bankers Association's economic advisory committee, "...concern about a war with Iraq is 'enough to be an impediment' to economic growth but...the committee does not anticipate an extended conflict and considers a recession highly unlikely." The uncertainty surrounding a possible conflict leads to employers' reluctance to hire in the short term. The ABA's economic advisory committee is comprised of the chief economists at 11 U.S. bank companies. In its most recent report the committee predicted GDP growth of 3.5 percent by the second half of 2003; bolstered by improvements in consumer spending and the continued success of the housing industry.

Sources: The National Federation of Independent Business Economic Report for December 2002; and American Banker Online, "ABA: Business Lending to Pick Up" by Brooke A. Brower, January 23, 2003.