SYNOPSIS:

Over the last two weeks, nobody has been paying much attention to economic news; even the ups and downs of the Dow have reflected reports from the battlefield, not the boardroom. But the economic news is quite worrying. Indeed, the latest readings suggest that our recovery, such as it is, may be stalling.

Actually, the recovery can't officially stall since it hasn't officially begun: the committee that rules on such matters still hasn't declared the recession that began in March 2001 over. There are good reasons for the committee's hesitation: while G.D.P. started growing in late 2001, the job situation — which is what matters to most people — has more or less steadily worsened. In particular, fewer people are working now than were employed a year ago. Since the working-age population continues to rise, jobs have become steadily harder to find.

Still, the latest data suggest that the rate at which things are getting worse is accelerating. In February, payroll employment fell by 308,000 — the worst reading since November 2001. Some analysts suggested that number was a fluke, distorted by bad weather, but yesterday there were two more worrying indicators: new claims for unemployment insurance jumped, and a survey of service sector companies suggests that the economy as a whole is contracting.

Now what? Ever since hopes of a rapid recovery faded last summer, the economy has seemed balanced on a knife-edge. Pessimists like Stephen Roach of Morgan Stanley warn that the U.S. is near its "stall speed": growth so slow that consumers, nervous about a weak job market, cut back on spending and send the economy into a tailspin. Yet optimists keep expecting businesses, anxious to update their technology, to resume large-scale investment and create a robust recovery. Both outcomes are still possible, but it seems increasingly likely that consumers will lose their nerve before businesses regain theirs.

Optimists now place their faith in the supposed salutary effects of victory in Iraq. The theory is that businesses have been postponing investments until uncertainty over the war is resolved, and that once that happens there will be a great surge of pent-up demand. I'm skeptical: I think the main barriers to an investment revival are excess capacity, corporate debt and fear of accounting scandals. (The revelations about HealthSouth suggest that there is still plenty of undiscovered corporate malfeasance.) I also wonder whether victory in Iraq will mark the end of uncertainty, or the beginning of even more uncertainty. Are we on the road to Damascus (or Tehran, or Yongbyon)?

Meanwhile, there's a new concern: macroeconomic recovery may fall victim to microbe economics.

Serious people know that germs pose a far greater threat to mankind than terrorism, and readers of books like William McNeill's "Plagues and Peoples" and Jared Diamond's "Guns, Germs and Steel" know microbes have been the downfall of many a civilization. SARS — severe acute respiratory syndrome, a new virus from Guangdong Province in China — doesn't look like a civilization-killer, and probably isn't nearly as bad as the 1918-19 influenza virus. But experts fear it may be too late to prevent a global SARS pandemic — that is, it may be too late to stop the virus from spreading throughout the world. And the bug is already having major economic consequences: fear of the disease has paralyzed much business in Hong Kong and has led to a drop in air travel worldwide.

Even if SARS doesn't become widespread here — and that's not a safe bet — it can do a lot of damage to our own economy because the world has grown so interdependent. Consider this: the most likely engine of a vigorous U.S. recovery would be a renewed surge in technology spending, and Guangdong is now the workshop of the information technology world, the place where a lot of the equipment that we would expect businesses to buy if there was an investment boom — for example, components for wireless computer networks — is assembled. The virus is already hampering production, not so much because workers have become sick as because Taiwan-based managers and engineers are afraid to visit their plants. The result may be to stall an investment recovery before it starts.

The war has monopolized everyone's attention, including mine. But other things are happening, and you shouldn't be shocked if the economic news turns awful.

Originally published in The New York Times, 4.4.03