The lingering effects of the corporate governance scandals, rising oil prices, and growing uncertainties about the economic consequences of a possible war in Iraq were holding back the nascent recovery from the 2001 recession. The pessimism that had gripped the business community since the summer of 2000 intensified, and firms renewed their focus on restructuring rather than expanding their operations.
The result was another round of job cuts and continued sluggishness in capital spending. Intense geopolitical risks and uncertainties continued to weigh on the economy until major combat operations in Iraq ended this past spring. Shortly thereafter, the Congress enacted additional reductions in personal income taxes and extended the enhanced corporate expensing provisions for new investment.