Terror risk weighs on US economy

The US is on high security alert

Terrorism has overtaken weak job growth to become the biggest perceived threat to the US economy, a survey says.

The National Association for Business Economics (NABE) said 40% of its members cited terrorism as the number one threat, up from 19% six months ago.

"(Terrorism) is where NABE's members believe the next president should spend most of his effort," said NABE president Duncan Meldrum.

The poll also revealed concern over the size of the US budget deficit.

Borrow and spend

Twenty-three percent of respondents named the deficit - the amount by which government spending exceeds revenues - as the biggest threat to the economy, down slightly from 25% last time.

The budget shortfall is forecast to reach a record $445bn this year, swollen in part by the cost of the war in Iraq.

Budget deficits force the government to borrow more, and reduce its scope for cutting taxes and spending on investment.

The NABE, an influential association of economic experts, said 80% of poll respondents were in favour of public spending cuts or tax increases aimed at plugging the spending gap.

But just 37% of respondents actually expected Washington to cut spending or raise taxes over the next two years.

President George W. Bush and John Kerry, the Democrat challenger in the November presidential election, have both pledged to reduce the budget shortfall.

The NABE survey also revealed strong support for interest rate rises aimed at curbing price increases.

Inflation worries

The US Federal Reserve has approved two quarter point rises in interest rates since late June, taking borrowing costs to 1.5% from a 46-year low of 1%.

The Fed has said higher rates are needed to pre-empt inflationary pressures, and most forecasters expect further increases before the end of the year.

Concerns over weak jobs growth in the US appeared to have abated, with just 6% citing it as a major economic threat, down from 25% in the last survey.

The NABE poll was taken in late July and early August, when the US authorities had issued an alert over possible terror attacks.

Future surveys may show renewed concern over jobs, as official figures released since the survey was taken revealed that the pace of new job creation slowed dramatically in July.