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VOL. 117 | NO. 56 | Thursday, March 20, 2003

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Tensions in Iraq alter local economic dynamics

Tensions in Iraq alter local economic dynamics


The Daily News

Duration and outcome of the tense situation in Iraq are two significant unknowns facing the U.S. economy as military forces prepare to engage that countrys tumultuous leadership.

Locally, businesses, citizens and workers in a multitude of industries also are preparing for the uncertainties that lie ahead, while a variety of economic indicators reveal an insecure national climate.

The price of gasoline in the Mid-South currently hovers around $1.65, and the unemployment rate tallied 5.8 percent for February.

Both factors directly affect money pumped into the local economy as the spring tourism season kicks off.

During a war, tourism markets typically experience a decrease in air travelers and an increase in drive-in visitors, said Brian Ferguson, vice president of new products for Nashville, Tenn.-based Smith Travel Research Team.

People are concerned about flying, but not so much about driving, he said.

In Memphis, where springtime tourism is particularly vital to the economy, tensions in Iraq have escalated very near the kickoff of the annual Memphis In May International Festival activities which draw thousands of people Downtown and generate millions of dollars for local businesses.

Statistics from recent weeks already have indicated a general decline in tourism, Ferguson said.

We dont know, however, how much of that is due to the poor economy, or the war or an interplay, he said. Projections for tourism nationally right now are assumed without any war.

Meanwhile, the U.S. Department of Commerce reported this week that housing construction nationwide plummeted 11 percent in February from January; in the South, housing construction dropped by 9.4 percent.

While that statistic marks the most acute drop in about 10 years, not everyone associates it with the situation in the Persian Gulf.

Its the uncertainty about whether or not we were going to war that may have been a factor, said John Duke, president of the Memphis Area Home Builders Association. But, just like what happened to the stock market, now that the decision has been made, it should improve.

Duke said local home building activity was, in fact, busier in January and February than during the same period a year ago.

He attributed sluggish activity nationwide to poor construction weather.

We just finished the third rainiest season in history, he said. Im readying right now for many lots to get ready (for building).

The National Association of Realtors projects that despite war in Iraq, conditions are in place for a strong housing market in 2003.

The organization predicts 2003 will see 5.5 million existing-home sales, a slight decrease from a record 5.57 million sales in 2002.

Last week, rates on 30-year mortgages dropped to a record low of 5.61 percent, the fourth consecutive week that weekly rates dropped to new lows.

David Lereah, NARs chief economist, said an unsteady and unreliable stock market could lead investors to turn their attention to real estate.

But Keith Barger, Patriot Bank vice president and regional manager of mortgage services, offers a different perspective.

He has noticed that clients have been anxious to make decisions and complete financial transactions, such as buying new homes or refinancing, because they fear current low interest rates wont last especially with the nation at war.

We have a tendency to circle the wagons, and as a banker, this can be hurtful to the extent people decide not to buy new homes or they put their lives on hold while the country waits to see the outcome of the war, Barger said.

He added that an unsteady domestic and international climate persuades Americans overall to adjust their financial strategies.

I believe the possible war will make people focus on what they value most in life, he said. They will take time to evaluate life goals such as retirement or their childrens savings.

Duke observed that investing whether in new homes or other areas involves careful planning.

And planners, in relation to war with Iraq, see a short-term effect if any at all.

We have to project six to eight months down the line anyway, he said. The public sector remembers how short the first war in 1991 was, and they are expecting that same, quick outcome again.

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